Question

If the tax on gasoline is doubled then the deadweight loss will

	a.	also be doubled.
	b.	rises by a factor of 16.
	c.	be tripled.
	d.	be quadrupled.

When boats are taxed and sellers of boats are required to pay the tax to the government,

	a.	the demand for boats increases.
	b.	the quantity of boats bought and sold in the market is reduced.
	c.	the price paid by buyers of boats decreases.
	d.	there is a movement downward and to the right along the demand curve for boats.

A deadweight loss arise

	a.	because the tax increases the equilibrium price in the market.
	b.	because the tax imposes a loss on buyers that is greater than the loss to sellers.
	c.	because the tax revenue generated will be used in government spending.
	d.	because the tax causes buyers to consume less, and sellers to produce less.

Answer 1

1) If the tax on gasoline is doubled then the deadweight loss will

The deadweight loss will be quadrupled

option(D)

2) When boats are taxed and sellers of boats are required to pay the tax to the government,

the quantity of boats bought and sold in the market is reduced as the tax will increase the price paid by consumers and decrease the price received by sellers which decreases the equilibrium quantity.

option(B)

3) A deadweight loss arise

because the tax causes buyers to consume less, and sellers to produce less.

option(D)

As the tax creates a wedge between the supply and demand,the equilibrium quantity decreases which is represented by the loss in welfare or deadweight loss.