Figure 8-19 the Vertical Distance Between Points a and B Represents the Represents

question 56

Multiple Choice

Figure 8-19
The vertical distance between points A and B represents the original tax.
-Refer to Figure 8-19.The original tax can be represented by the vertical distance AB.Suppose the government is deciding whether to lower the tax to CD or raise it to FG.Which of the following statements is correct?

• A)Compared to the original tax,the larger tax will decrease both tax revenue and deadweight loss.
• B)Compared to the original tax,the smaller tax will increase both tax revenue and deadweight loss.
• C)Compared to the original tax,the larger tax will decrease tax revenue and increase deadweight loss.
• D)Both a and b are correct.

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Definitions:

Economic System

The structure of methods and principles a society uses to produce and distribute goods and services.

Price Mechanism

The way in which the forces of supply and demand determine the price of goods and services in a free market.

Efficient Allocation

The process where resources are distributed in a manner that maximizes the net benefits attained through their use.

Socialist Economy

An economic system where the production, distribution, and exchange of goods and services are controlled by the government with the aim of reducing inequality.