Reference: Ref 6-6 (Figure: Consumer and Producer Surplus) According to the figure, what would happen to the deadweight loss if the tax increased to $2 per basket of apples?
A) The new tax would minimize deadweight loss.
B) Deadweight loss does not change due to a change in the tax.
C) There is no way to tell what will happen to deadweight loss.
D) Deadweight loss will increase.

Question

Reference: Ref 6-6 (Figure: Consumer and Producer Surplus) According to the figure, what would happen to the deadweight loss if the tax increased to $2 per basket of apples?
A) The new tax would minimize deadweight loss. 
B) Deadweight loss does not change due to a change in the tax. 
C) There is no way to tell what will happen to deadweight loss. 
D) Deadweight loss will increase.

Quizplus · Accepted Answer

As the tax increases to $2 per basket of apples, the deadweight loss will increase. This is because a higher tax will discourage both consumers and producers from participating in the market, resulting in a reduction in quantity traded and a larger deadweight loss.

Reference: Ref 6-6 (Figure: Consumer and Producer Surplus) According to the Figure