Figure 8-17
The vertical distance between points A and B represents the original tax.

-Refer to Figure 8-17.The original tax can be represented by the vertical distance AB.Suppose the government is deciding whether to lower the tax to CD or raise it to FG.Which of the following statements is not correct?
A) Compared to the original tax, the larger tax will increase tax revenue.
B) Compared to the original tax, the smaller tax will decrease deadweight loss.
C) Compared to the original tax, the smaller tax will decrease tax revenue.
D) Compared to the original tax, the larger tax will increase deadweight loss.

Question

Figure 8-17
The vertical distance between points A and B represents the original tax.
 
-Refer to Figure 8-17.The original tax can be represented by the vertical distance AB.Suppose the government is deciding whether to lower the tax to CD or raise it to FG.Which of the following statements is not correct?
A) Compared to the original tax, the larger tax will increase tax revenue. 
B) Compared to the original tax, the smaller tax will decrease deadweight loss. 
C) Compared to the original tax, the smaller tax will decrease tax revenue. 
D) Compared to the original tax, the larger tax will increase deadweight loss.

Quizplus · Accepted Answer

Increasing the tax does not always increase tax revenue due to the potential decrease in the quantity traded, which can lead to a decrease in total tax revenue.

Figure 8-17 the Vertical Distance Between Points a and B Represents the Represents