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- Subject
- Taxationeconomics-mcqs › taxation
- Published
- 28 May 2019
- Last updated
- 28 May 2026
Sana values a pair of blue jeans at Rs400. When the price is Rs350, she purchases the jeans and gains a consumer surplus of Rs50. If a tax causes the price to increase to Rs450, Sana decides not to buy the jeans. What concept does this scenario illustrate?
Multiple choice question for Taxation. Select an option, then review the explanation below.
Explanation
This example demonstrates the deadweight loss that occurs when a tax raises the price above the consumer's valuation, leading to a lost transaction and reduced economic efficiency. The consumer surplus is eliminated, showing the inefficiency caused by taxation.
More Taxation MCQs
Practice related questions from the same subject.
- 1.What defines a progressive tax system?
- 2.Which tax rate is most relevant when evaluating the vertical equity of a taxation system?
- 3.What defines an efficient tax system?
- 4.What is the result when a tax changes the behavior of buyers and sellers, leading to a reduction in the quantity of goods produced and exchanged compared to a no-tax scenario?
- 5.What happens to the deadweight loss when the tax imposed on a product is doubled?