Which of the Following Statements Is Correct Regarding a Tax

question 53

Multiple Choice

Which of the following statements is correct regarding a tax on a good and the resulting deadweight loss?

• A)The greater are the price elasticities of supply and demand,the greater is the deadweight loss.
• B)The greater is the price elasticity of supply and the smaller is the price elasticity of demand,the greater is the deadweight loss.
• C)The smaller are the decreases in quantity demanded and quantity supplied,the greater the deadweight loss.
• D)The smaller is the wedge between the effective price to sellers and the effective price to buyers,the greater is the deadweight loss.

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Definitions:

Progressive Income Tax

A tax system where the tax rate increases as the taxable amount increases, placing a higher tax burden on high-income earners.

Ability-to-Pay Principle

A tax principle suggesting that taxes should be levied according to an individual or entity's capacity to pay, generally implying that those with higher incomes should pay more tax.

Proportional Income Tax

A tax system where the tax rate remains constant regardless of the amount of income, thus taxing all income levels at the same percentage.

Horizontal Equity

The principle that individuals or entities in similar financial situations should be treated equally by the tax system or other public policies.