Asked by Angelstar Kasper on May 03, 2024
Verified
Refer to Scenario 12-1. Suppose the government levies a tax of $6 on each bottle of beer, and the equilibrium price of a bottle of beer increases to $20. Because total consumer surplus has
A) fallen by more than the tax revenue, the tax has a deadweight loss.
B) fallen by less than the tax revenue, the tax has no deadweight loss.
C) fallen by exactly the amount of the tax revenue, the tax has no deadweight loss.
D) increased by less than the tax revenue, the tax has a deadweight loss.
Deadweight Loss
The decrease in economic productivity that happens when a good or service does not reach, or cannot reach, its equilibrium point.
Consumer Surplus
The difference between the maximum amount consumers are willing to pay for a good or service and the actual amount they do pay.
Tax Revenue
The wealth accumulated by governments through the process of taxation.
- Become familiar with the idea of deadweight loss as it pertains to taxation and its repercussions on surplus.
- Investigate the role of taxation in shaping consumer behavior and its implications for market results.
Verified Answer
ZK
Zybrea KnightMay 04, 2024
Final Answer :
A
Explanation :
The tax causes the price to increase, reducing the consumer surplus more than the amount of tax revenue generated, indicating a deadweight loss.
Learning Objectives
- Become familiar with the idea of deadweight loss as it pertains to taxation and its repercussions on surplus.
- Investigate the role of taxation in shaping consumer behavior and its implications for market results.