Respuesta :
If the government increases taxes on gasoline, this will cause (A) an Increase in a deadweight loss in the market for gasoline and an increase in the price of ethanol.
What is deadweight loss?
- The difference in production and consumption of any given goods or service, including government tax, is referred to as deadweight loss.
- When the quantity generated relative to the amount eaten departs from the optimal concentration of surplus, the existence of deadweight loss is most commonly recognized.
- This disparity in amount represents the quantity that is not used or eaten, resulting in a loss.
- This "deadweight loss" is thus attributed to both producers and consumers because none benefits from the overall production excess.
Reason -
If the government increases taxes on ethanol and gasoline os the price of ethanol will increase as the taxes are higher and the deadweight loss will increase due to an increase in taxes.
Therefore, the correct option is (A) an increase in deadweight loss in the market for gasoline and an increase in the price of ethanol.
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Complete question:
Gasoline and ethanol are substitute fuels with downward sloping demand curves and upward sloping supply curves. If the government increases taxes on gasoline, this will cause a(n):
A. increase in deadweight loss in the market for gasoline and an increase in the price of ethanol.
B. a decrease in a deadweight loss in the market for gasoline and an increase in the price of ethanol.
C. increase in deadweight loss in the market for gasoline and a decrease in the price of ethanol.
D. increase in deadweight loss in the market for gasoline and a decrease in demand for ethanol.
E. decrease in a deadweight loss in the market for gasoline and an increase in demand for ethanol.
