My answer might be wrong. Please explain your answer. Thank you in advnace. The

Question

My answer might be wrong. Please explain your answer. Thank you in advnace.

The figure represents the relationship between the size of a tax and the tax revenue raised by that tax. If the economy is at point B on the curve, then a small decrease in the tax rate will decrease the deadweight loss of the tax and increase tax revenue. increase the deadweight loss of the tax and increase tax revenue. decrease the deadweight loss of the tax and decrease tax revenue. Increase the deadweight loss of the tax and decrease tax revenue.

Explanation / Answer

POINT B IS IN THE REGION OF DECLINING TAX REVENUE. A DECREASE IN TAX RATE WILL INCREASE TAX REVENUE IF YOU ARE AT B ACCORDING TO THE SAHPE OF LAFFER CURVE.

With decrease in the tax rate, the deadweight loss of the tax decreases even more rapidly than the size of the tax because that part will be distributed among consumers and producers.

Option A is the answer.

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