Figure 8-19. The figure represents the relationship between the size of a tax and the tax revenue raised by that tax.

-Refer to Figure 8-19.If the economy is at point B on the curve,then a small decrease in the tax rate will

Question

Figure 8-19. The figure represents the relationship between the size of a tax and the tax revenue raised by that tax.
 
-Refer to Figure 8-19.If the economy is at point B on the curve,then a small decrease in the tax rate will

Quizplus · Accepted Answer

At point B, the size of the tax is neither too high nor too low. If the tax rate is slightly decreased, it will lead to a decrease in deadweight loss because the tax burden on consumers and producers will be lighter. At the same time, a decrease in the tax rate will increase the incentive for consumers and producers to engage in economic activity, leading to increased tax revenue. Therefore, a decrease in the tax rate from point B will decrease the deadweight loss of the tax and increase tax revenue.