In the Absence of Taxes,Ashley Would Prefer to Purchase a Large

question 323

Multiple Choice

In the absence of taxes,Ashley would prefer to purchase a large sport utility vehicle (SUV) .The government has recently decided to place a $10,000 nuisance tax on SUVs.If Ashley decides to purchase a small economy car as a result of the tax,which of the following statements is correct?

• A) Other people who choose to purchase SUVs 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 SUVs.
• C) In order to determine the magnitude of the deadweight loss, we must add the revenues from the tax to the loss in Ashley's consumer surplus.
• D) Ashley is worse off, and her loss of welfare is part of the deadweight loss of the tax.

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