Question

Question text

Which of the following statement(s) is correct?

(x)   Deadweight loss measures the loss in a market to buyers and sellers that is not offset by an increase in government revenue.

(y)   The imposition of a tax on a good raises the price that buyers effectively pay, but lowers the price that sellers effectively keep.

(z)   When the government places a tax on a good, the loss of consumer surplus and producer surplus to buyers and sellers is more than the tax revenue raised from the imposition of the tax.

Select one:

A. (x), (y) and (z)

B. (x) and (y) only

C. (x) and (z) only

D. (x) and (y) only

E. (y) only

Which of the following statement(s) is correct?

(x)   Assume that the demand for food is relatively inelastic and the demand for jewelry is relatively elastic. Suppose government imposed the same excise tax on both goods. As a result, the tax revenue from the tax on jewelry will always be less than the tax revenue from the tax on food.

(y)   Taxes cause deadweight losses because they prevent buyers and sellers from realizing some of the gains from trade due to marginal buyers and sellers leaving the market.

(z) The deadweight loss from taxes is lower when tax rates are higher than when tax rates are lower.

Select one:

A. (x), (y) and (z)

B. (x) and (y) only

C. (x) and (z) only

D. (y) and (z) only

E. (y) only

Answer 1

Ans )

Option B. --->. (X and Y)

The deadweight loss cannot be offset by the increase in the governemnt revenue as this is a type of loss which does not accrue to anyone in the society.

In other words, no one benefits from the dead weight loss.

After the tax, the price that the buyer pays increases and the price that the seller receives decreases , because the burden of tax falls on both sellers and buyers.

One cannot be sure that the loss in producer and consumer surplus would always be greater than the amount of government revenue collected through tax.It all depends upon the supply and demand curve.

Answer) Option B

Option A .(X and Y)

Government revenue would be higher when the demand is inelastic has in that case the consumer would purchase the product even if the price increases.

Deadweight loss would be higher when the taxes are higher and they are lower when the taxes are lower.