If the tax on gasoline increases from $2 to $4 per gallon,the deadweight loss from the tax increases by a factor of
A)one-half.
B)two.
C)four.
D)six.

Question

Quizplus · Accepted Answer

The deadweight loss from a tax increases as the square of the tax rate. So if the tax rate doubles from $2 to $4 per gallon, the deadweight loss will increase by a factor of four (4/1). Therefore, the correct answer is option (C).

If the Tax on Gasoline Increases from $2 to $4