The market for tennis shoes has a horizontal supply curve and a linear, downward-sloping demand curve.Currently the government imposes a tax of t on every pair of tennis shoes sold and does not tax other goods.The government is considering a plan to double the tax on tennis shoes, while leaving other goods untaxed.If the tax is doubled, then

Question

Quizplus · Accepted Answer

Doubling the tax on a good with a downward-sloping demand curve and a horizontal supply curve leads to a deadweight loss that increases more than proportionally. This is because the tax distorts the market more significantly, reducing the quantity traded by a larger margin and thus creating a larger inefficiency in the market.

The Market for Tennis Shoes Has a Horizontal Supply Curve