When tastes are quasilinear, the sole reason for the deadweight loss from a per-unit tax is that output falls under the tax.

Question

Quizplus · Accepted Answer

In quasilinear preferences, the consumer assigns a fixed dollar amount to non-quantifiable features of the good, allowing them to increase their consumption of the good when the price decreases. As a result, the consumer surplus decreases linearly with quantity and is independent of price. Thus, the only reason for the deadweight loss from a per-unit tax is reduced output due to higher prices, as quasilinear tastes eliminate any substitution effect.

When Tastes Are Quasilinear, the Sole Reason for the Deadweight