As the size of a tax rises,the deadweight loss
A)rises,and tax revenue first rises,then falls.
B)rises as does tax revenue.
C)falls,and tax revenue first rises,then falls.
D)falls as does tax revenue.

Question

Quizplus · Accepted Answer

When the size of a tax rises, the deadweight loss increases, meaning that the cost of the tax to society increases, including the loss of surplus from transactions that no longer occur due to the tax. Initially, as the tax is raised, tax revenue increases since there is more revenue to collect from the higher tax rate. However, at a certain point, the tax becomes so high that it stifles economic activity and transactions, causing tax revenue to actually decrease. This is known as the Laffer Curve. Therefore, as the size of a tax rises, the deadweight loss rises, and tax revenue first rises, then falls.

As the Size of a Tax Rises,the Deadweight Loss