Microeconomics Chapter 8 Study Guide

Which of the following would likely cause the greatest deadweight loss?

A tax on cruise line tickets

A tax on gasoline is likely to

Cause a greater deadweight loss in the long run when compared to the short run

When a tax distorts incentives to buyers and sellers so that fewer goods are produced and sold, the tax has:

Caused a deadweight loss

The reduction of a tax:

Could increase tax revenue if the tax had been extremely high

When a tax on a good starts small and is gradually increased, tax revenue will:

First rise, then fall

Suppose the supply of diamonds is relatively inelastic. A tax on diamonds would likely generate a:

Small deadweight loss and the burden of the tax would fall on the seller of the diamonds