Other things equal,the deadweight loss of a tax
A)decreases as the size of the tax increases.
B)increases as the size of the tax increases,but the increase in the deadweight loss is less rapid than the increase in the size of the tax.
C)increases as the size of the tax increases,and the increase in the deadweight loss is more rapid than the increase in the size of the tax.
D)increases as the price elasticities of demand and/or supply increase,but the deadweight loss does not change as the size of the tax increases.

Question

Quizplus · Accepted Answer

The deadweight loss of a tax increases as the size of the tax increases, and the increase in deadweight loss is more rapid than the increase in the size of the tax. This is because as the tax increases, it creates more distortion in the market, leading to a larger reduction in consumer and producer surplus. This reduction in surplus represents the deadweight loss. Therefore, larger taxes lead to larger deadweight losses, and the increase in deadweight loss is more rapid than the increase in the size of the tax.

Other Things Equal,the Deadweight Loss of a Tax