If the government quadrupled the tax on gasoline i.e. increased the tax by a fac

Question

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

Explanation / Answer

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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