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.

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Definitions:

Gross Wages

The total amount earned by an employee before any deductions such as taxes or retirement contributions.

Regular Rate

The standard rate of pay for an employee's normal working hours, not including overtime or bonuses.

Warranty Expense

Costs associated with the obligation of a company to repair, replace, or compensate for defective goods sold to customers.

Warranty Liability

Warranty liability is an obligation that a company assumes when it promises to repair or replace defective products during a specified period, representing a potential future expense.