For an excise tax which causes output in a market to fall to zero:
A)the tax revenue and deadweight loss are both zero.
B)the tax revenue is positive but there is no deadweight loss.
C)the deadweight loss is equal to the total surplus before the tax.
D)the deadweight loss is equal to the producer's surplus.

Question

Quizplus · Accepted Answer

When an excise tax causes output in a market to fall to zero, there is no tax revenue, but the deadweight loss is equal to the total surplus before the tax. This is because the tax has completely eliminated the market, and the loss of benefits to consumers and producers is equivalent to the pre-tax total surplus.

For an Excise Tax Which Causes Output in a Market