Scenario 12-1
Skip places a $20 value on a bottle of wine, and Walt places a $17 value on it. The equilibrium price for a bottle of wine is $15.
-Refer to Scenario 12-1.Suppose the government levies a tax of $3 on each bottle of wine,and the equilibrium price of a bottle of wine increases to $18.Because total consumer surplus has
A) fallen by more than the tax revenue, the tax has a deadweight loss
B) fallen by less than the tax revenue, the tax has no dead weight loss.
C) fallen by exactly the amount of the tax revenue, the tax has no deadweight loss.
D) increased by less than the tax revenue, the tax has a deadweight loss.

Question

Quizplus · Accepted Answer

The tax causes the equilibrium price to rise, reducing consumer surplus more than the tax revenue collected, indicating a deadweight loss.

Scenario 12-1 Skip Places a $20 Value on a Bottle of Wine