Figure 8-10
The vertical distance between points A and B represents the original tax.
-Refer to Figure 8-10.The original tax can be represented by the vertical distance AB.Suppose the government is deciding whether to lower the tax to CD or raise it to FG.Which of the following statements is not correct?
A) Compared to the original tax,the larger tax will increase tax revenue.
B) Compared to the original tax,the smaller tax will decrease deadweight loss.
C) Compared to the original tax,the smaller tax will decrease tax revenue.
D) Compared to the original tax,the larger tax will increase deadweight loss.

Question

Figure 8-10
The vertical distance between points A and B represents the original tax. 
-Refer to Figure 8-10.The original tax can be represented by the vertical distance AB.Suppose the government is deciding whether to lower the tax to CD or raise it to FG.Which of the following statements is not correct?
A) Compared to the original tax,the larger tax will increase tax revenue. 
B) Compared to the original tax,the smaller tax will decrease deadweight loss. 
C) Compared to the original tax,the smaller tax will decrease tax revenue. 
D) Compared to the original tax,the larger tax will increase deadweight loss.

Quizplus · Accepted Answer

A larger tax does not necessarily increase tax revenue due to the potential for a decrease in the quantity traded, which can lead to a decrease in overall tax revenue. This is known as the Laffer Curve effect.

Figure 8-10 the Vertical Distance Between Points a and B Represents the Represents