Asked by Emily Yannatone on Jul 20, 2024
Verified
Suppose the federal government doubles the gasoline tax. The deadweight loss associated with the tax
A) also doubles.
B) triples.
C) quadruples.
D) rises by a factor of 8.
Deadweight Loss
The reduction in economic productivity that happens when a market for a product or service fails to reach or cannot reach equilibrium.
Gasoline Tax
A specific tax levied on the sale of gasoline, often implemented to fund transportation-related projects and to encourage fuel efficiency considerations among consumers.
- Assess the impact of variations in tax rates on market balance and overall well-being.
Verified Answer
NM
Norman MinervaJul 25, 2024
Final Answer :
C
Explanation :
The deadweight loss associated with a tax increases with the square of the tax rate, so if the tax rate doubles, the deadweight loss quadruples.
Learning Objectives
- Assess the impact of variations in tax rates on market balance and overall well-being.