If a tax on a good is doubled the deadweight loss from the tax ?
Correct answer: C. increase by a factor of four.
- A. doubles
- B. stays the same
- C. increase by a factor of four.
- D. could rise or fall
Explanation
Under the standard linear supply-and-demand model, deadweight loss is proportional to the square of the tax wedge. Doubling the tax therefore increases deadweight loss by four times, assuming the relevant curves and conditions remain unchanged.
Last updated
About Public Finance
Government revenue and expenditure are analysed through taxation, public borrowing, budgets, subsidies, transfers and public debt. The topic explains how fiscal policy affects resource allocation, income distribution, economic stability and growth, while distinguishing direct from indirect taxes, progressive from regressive taxation, and public goods from goods supplied by private markets.
Practise Public Finance
369 free Public Finance MCQs from Economics, each with the correct answer and an explanation. Unlimited attempts, no account needed.
Exams that ask Economics questions like this
Economics is on 2 papers prepared for on TestUstad, and all of them draw the same bank, so this question is worth knowing for every one of them.
Related questions
3M runs a Pollution a Prevention Pays program that has led to a substantial reduction in pollution and costs this would be an example of responding and costs. This would be an example of responding to which of the following ?
A budgetary deficit means ?
A common resource is ?
A fiscal deficit occurs when the government:
A formal structure of an organizations is its_______________?