If the tax on a good is increased from $1 per unit to $3 per unit,the deadweight loss from the tax increases by a factor of
A) 2.
B) 3.
C) 9.
D) 18.

Question

Quizplus · Accepted Answer

The deadweight loss from a tax increases as the square of the tax rate. In this case, the tax rate increases from $1 to $3, which is a threefold increase. Therefore, the deadweight loss increases by a factor of 3^2 = 9. Thus, Choice C) is the correct answer.

If the Tax on a Good Is Increased from $1