If the tax on a good is increased from $0.10 per unit to $0.40 per unit,the deadweight loss from the tax
A) remains constant.
B) increases by a factor of 4.
C) increases by a factor of 9.
D) increases by a factor of 16.

Question

Quizplus · Accepted Answer

The deadweight loss from a tax increases as the tax rate increases. In this case, the tax rate has increased by a factor of 4 (from $0.10 to $0.40). Therefore, the deadweight loss will increase by a factor of 16 (4^2).

If the Tax on a Good Is Increased from $0