If the tax on a good is increased from $0.30 per unit to $0.90 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 is proportional to the square of the tax rate. So, if the tax rate is increased by a factor of 3 (from $0.30 to $0.90), the deadweight loss will increase by a factor of 9.

If the Tax on a Good Is Increased from $0