As the size of a tax decreases:
A)the deadweight loss from the tax declines
B)the deadweight loss from the tax remains constant
C)the deadweight loss from the tax increases
D)the deadweight loss could increase or decrease depending on the relative elasticities of demand and supply

Question

Quizplus · Accepted Answer

As the size of a tax decreases, the deadweight loss from the tax declines. This is because a smaller tax means that consumers and producers can adjust their behavior and transactions to a lesser extent, resulting in less distortion in market outcomes. Therefore, the reduction in the tax leads to a reduction in the amount of deadweight loss incurred.

As the Size of a Tax Decreases