Figure 8-23.The figure represents the relationship between the size of a tax and the tax revenue raised by that tax.
-Refer to Figure 8-23.If the economy is at point A on the curve,then a small increase in the tax rate will
A)increase the deadweight loss of the tax and increase tax revenue.
B)increase the deadweight loss of the tax and decrease tax revenue.
C)decrease the deadweight loss of the tax and increase tax revenue.
D)decrease the deadweight loss of the tax and decrease tax revenue.

Question

Figure 8-23.The figure represents the relationship between the size of a tax and the tax revenue raised by that tax. 
-Refer to Figure 8-23.If the economy is at point A on the curve,then a small increase in the tax rate will
A)increase the deadweight loss of the tax and increase tax revenue. 
B)increase the deadweight loss of the tax and decrease tax revenue. 
C)decrease the deadweight loss of the tax and increase tax revenue. 
D)decrease the deadweight loss of the tax and decrease tax revenue.

Quizplus · Accepted Answer

At point A, the economy is likely on the upward-sloping side of the Laffer curve, where a small increase in the tax rate will increase tax revenue, but also increase the deadweight loss due to higher distortion in the market.