📚 Learning Guide
Taxation and Deadweight Loss
easy

A tax imposed on a good with negative externalities, such as copper production, will always eliminate deadweight loss and ensure that the market output is socially optimal.

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Answer

A tax on a good with negative externalities, like copper production, aims to reduce the harm caused by that good, such as pollution. When the government imposes this tax, it raises the cost of production, which can lead to a decrease in the quantity produced. This decrease helps align the market output with the social cost, making it more efficient and reducing deadweight loss. However, it's important to note that while the tax can improve the situation, it may not completely eliminate deadweight loss or guarantee a perfect social outcome. For example, if the tax is set too low, producers might still create more pollution than is socially acceptable, meaning that some inefficiencies might persist.

Detailed Explanation

A tax can help reduce negative effects, but it doesn't always fix everything. Other options are incorrect because Some might think that a tax will always solve problems.

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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