Sunday, February 7, 2010

Are these economic statements true or false?

are these statements true or false and why?





a tax that has no dead weight loss cannot raise any revenue for the govt.





a tax that raises no revenue for the govt cannot have any dead weight loss.Are these economic statements true or false?
A)


False, this tax actually may raise potentially unlimited revenue in case if demand or supply is perfectly inelastic. But for case if demand and supply are perfectly elastic then this tax really can't raise any revenue.





B)


False, for instance too high tax may completely close market (reduce traded quantity to zero) thus raising no revenue, but it caused maximum deadweight loss.

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