A tax on a previously untaxed monopoly-produced good will necessarily lower total welfare if
A) the demand curve is relatively inelastic.
B) the demand curve is relatively elastic.
C) less than the socially optimum is produced before the tax.
D) more than the socially optimum is produced before the tax.

Question

Quizplus · Accepted Answer

A tax on a monopoly-produced good that is already producing less than the socially optimal quantity will further reduce output, increasing the deadweight loss and lowering total welfare.

A Tax on a Previously Untaxed Monopoly-Produced Good Will Necessarily