Figure 18-2

Figure 18-2 shows a demand curve and two sets of supply curves, one set more elastic than the other.
-Refer to Figure 18-2.If the government imposes an excise tax of $1.00 on every unit sold,
A)the deadweight loss is identical under either supply curve.
B)the deadweight loss is greater under the supply curve S₁.
C)the deadweight loss is greater under the supply curve S₀.
D)there is no deadweight loss since revenue raised is used to fund government projects.

Question

Figure 18-2
  
Figure 18-2 shows a demand curve and two sets of supply curves, one set more elastic than the other.
-Refer to Figure 18-2.If the government imposes an excise tax of $1.00 on every unit sold,
A)the deadweight loss is identical under either supply curve. 
B)the deadweight loss is greater under the supply curve S₁. 
C)the deadweight loss is greater under the supply curve S₀. 
D)there is no deadweight loss since revenue raised is used to fund government projects.

Quizplus · Accepted Answer

The deadweight loss is greater under the supply curve S₀ because the tax causes the quantity supplied to decrease more than it does under the supply curve S₁.

Figure 18-2 Figure 18-2 Shows a Demand Curve and Two Sets of Curve