Suppose the government increases the size of a tax by 25 percent.The deadweight loss from that tax

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Quizplus · Accepted Answer

The deadweight loss from a tax increases at a rate greater than the rate of increase in the tax itself. This is because the deadweight loss is determined by the degree of distortion caused by the tax relative to the size of the tax. As the tax gets larger, the distortion caused by the tax increases at an increasing rate, resulting in a larger increase in deadweight loss than the increase in the size of the tax.

Suppose the Government Increases the Size of a Tax by 25