Figure 8-17 the Vertical Distance Between Points a and B Represents the Represents

question 251

Multiple Choice

Figure 8-17
The vertical distance between points A and B represents the original tax.

-Refer to Figure 8-17.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:

Expected Value

The long-term average or mean of random variables, representing the central tendency.

Perfect Information

A condition in decision theory and economics where all participants have full and identical knowledge about the actions others can take.

Power Company

A corporation that generates, transmits, and distributes electricity to consumers and businesses.

Expected Payoff

In decision theory and economics, the weighted average of all possible outcomes of a decision, where each outcome is weighted by its respective probability of occurrence.