Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It reduces deadweight loss by aligning private costs with social costs
B
It increases deadweight loss by discouraging production
C
It has no effect on deadweight loss as it only raises revenue
D
It eliminates all market inefficiencies completely
Understanding the Answer
Let's break down why this is correct
Answer
When a government imposes a tax on copper production, it aims to reduce the negative impact on the environment. However, this tax can create deadweight loss, which means that it reduces the overall efficiency of the market. This happens because the tax raises the cost for producers, leading them to produce less copper than they would without the tax. For example, if a copper company decides to cut back on production due to higher costs from the tax, it may not meet the demand for copper, causing some customers to go without. As a result, both the producers and consumers lose out, leading to a less efficient market.
Detailed Explanation
The tax makes producers pay for the harm they cause to the environment. Other options are incorrect because Some might think that a tax always makes production less appealing; It's a common belief that taxes only bring in money.
Key Concepts
Taxation and Deadweight Loss
Negative Externalities
Market Efficiency
Topic
Taxation and Deadweight Loss
Difficulty
easy level question
Cognitive Level
understand
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