In the absence of taxes, Carlos would prefer to purchase a large fishing boat with a 75 hp motor. The government has recently decided to place a tax on boats with 75 hp motors or higher. If Carlos decides to purchase a smaller boat with a 50 hp motor as a result of the tax, which of the following statements is correct?
A)Other people who choose to purchase large boats will incur the cost of the deadweight loss of the tax.
B)There are no deadweight losses as long as some people still choose to purchase large boats.
C)The deadweight loss will decrease as a result of an increases in Carlos's consumer surplus.
D)Carlos is worse off, and his loss of welfare is part of the deadweight loss of the tax.

Question

Quizplus · Accepted Answer

Carlos is worse off because he had to alter his original preference due to the tax, and this change in behavior leads to a loss in welfare for him, which is considered part of the deadweight loss associated with the tax.

In the Absence of Taxes, Carlos Would Prefer to Purchase