Asked by Rachel Dominguez on Jun 24, 2024
Verified
(Figure: Tax Incidence) Use Figure: Tax Incidence.Based on the figure,the deadweight loss of an excise tax is likely to be greater in panel _____ than in panel _____.
A) C;D
B) C;A
C) D;A
D) B;A
Deadweight Loss
An economic inefficiency that occurs when there is a difference between the supply and demand equilibrium and the quantity of a good being produced and consumed.
Excise Tax
Excise tax is a specific tax levied on certain goods, services, or activities, typically to discourage their use or to raise revenue for specific government programs.
Tax Incidence
The distribution of the economic burden of a tax between buyers and sellers, depending on the elasticity of demand and supply.
- Understand the concept of deadweight loss resulting from a tax and its implications on market efficiency.
- Recognize how elasticity of supply and demand affects the outcome of a tax imposition.
Verified Answer
MS
Mirela SaletovicJun 26, 2024
Final Answer :
A
Explanation :
Panel C and Panel D both have steeper demand and supply curves than Panel A and Panel B. This means that the tax incidence is greater in Panel C and Panel D, leading to a larger deadweight loss due to the decreased overall quantity of goods and services produced and consumed. Therefore, the best choice is A, as it includes Panel C, the panel with the largest deadweight loss.
Learning Objectives
- Understand the concept of deadweight loss resulting from a tax and its implications on market efficiency.
- Recognize how elasticity of supply and demand affects the outcome of a tax imposition.