Suppose a tax of $0.10 per unit on a good creates a deadweight loss of $100.If the tax is increased to $0.30 per unit,the deadweight loss from the new tax would be
A) $200.
B) $300.
C) $900.
D) $9,000.

Question

Quizplus · Accepted Answer

The deadweight loss from a tax increases as the tax rate increases. In this case, the original tax created a deadweight loss of $100, but when the tax rate triples to $0.30 per unit, the deadweight loss will increase by a factor of nine ($100 x 9 = $900). Therefore, the answer is (C) $900.

Suppose a Tax of $0