| If the government quadrupled the tax on gasoline i.e. increased the tax by a factor of four, what will happen to the deadweight loss from the gasoline tax? |
| | | A. it will increase by a factor of 16 | | | B. it will also quadruple | | | C. not enough information is given to determine by how much the deadweight loss will increase | | | D. it will increase by a factor of 2 | |
| If the government quadrupled the tax on gasoline i.e. increased the tax by a factor of four, what will happen to the deadweight loss from the gasoline tax? |
| | | A. it will increase by a factor of 16 | | | B. it will also quadruple | | | C. not enough information is given to determine by how much the deadweight loss will increase | | | D. it will increase by a factor of 2 | |
Since question does not talk about the elasticity of demand and supply, hence if we assume normal condition, then imposition of 4 time taxes would lead to the deadweight loss rise by the 4*4 = 16.
right answer is (A).
But actual level of deadweight loss would be zero if either demand or supply is perfectly inelastic.
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