For this question, suppose the market for widgets is perfectly competitive and the government introduces a per-unit $1 tax on widgets. Post-tax, quantity of widgets sold in market equals 100. Why could the deadweight loss caused by the tax be greater than the tax revenue collected?

Macroeconomics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506756
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter4: Demand And Demand: Applications And Extensions
Section: Chapter Questions
Problem 13CQ
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For this question, suppose the market for widgets is perfectly competitive and the government introduces a per-unit $1 tax on widgets. Post-tax, quantity of widgets sold in market equals 100. Why could the deadweight loss caused by the tax be greater than the tax revenue collected?

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