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Suppose People Freely Choose to Spend 40 Percent of Their

Question 77

Multiple Choice

Suppose people freely choose to spend 40 percent of their income on healthcare, but then the government decides to tax 40 of a person's income to provide the same level of coverage as before. What can be said about deadweight loss in each case?


A) Taxing income results in deadweight loss, and purchasing healthcare on one's own doesn't result in deadweight loss.
B) Taxing income results in less deadweight loss because government knows better what healthcare coverage is good for society.
C) There is no difference because the goods are purchased in the market in either case.
D) There is no difference because the total spending remains the same and the healthcare purchased remains the same.

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