The optimal tax is difficult to determine because although revenues rise and fall as the size of the tax increases, deadweight loss continues to increase.

Question

Quizplus · Accepted Answer

As the size of the tax increases, it distorts market transactions more severely, leading to greater inefficiencies and a larger deadweight loss, even though tax revenues may initially rise and then eventually fall due to reduced economic activity.

The Optimal Tax Is Difficult to Determine Because Although Revenues