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Kyle Places a $10 Value on a Glass of Red

Question 127

Multiple Choice

Kyle places a $10 value on a glass of red wine,and Keith places an $8 value on it.If there is no tax on glasses of red wine,the price of a glass of red wine reflects the cost of making it.The equilibrium price for a glass of red wine is $6.Suppose the government levies a tax of $3 on each glass of red wine,and the equilibrium price of a glass of red wine increases to $9.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 deadweight 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.

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