In the Absence of Taxes, Carlos Would Prefer to Purchase

question 124

Multiple Choice

In the absence of taxes, Carlos would prefer to purchase a large fishing boat with a 75 hp motor. The government has recently decided to place a tax on boats with 75 hp motors or higher. If Carlos decides to purchase a smaller boat with a 50 hp motor as a result of the tax, which of the following statements is correct?

• A)Other people who choose to purchase large boats will incur the cost of the deadweight loss of the tax.
• B)There are no deadweight losses as long as some people still choose to purchase large boats.
• C)In order to determine the size of the deadweight loss, we must add the revenues from the tax to the loss in Carlos's consumer surplus.
• D)Carlos is worse off, and his loss of welfare is part of the deadweight loss of the tax.

---

Definitions:

Direct Materials

Raw materials that can be directly attributed to the production of specific goods or services and are considered a variable cost.

Factory Overhead

All indirect costs incurred during the manufacturing process, excluding direct materials and direct labor.

Factory Rent

Factory rent refers to the cost associated with leasing a premise for manufacturing operations, classified as an overhead expense in accounting.

Prime Costs

The sum of expenses for the raw materials and labor directly involved in the manufacturing of a product.