Absence of taxes-part of the dead weight loss of the tax

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In the absence of taxes, Carlos would prefer to purchase a large fishing boat with a 75 hp motor. The government has recently decided to place a tax on boats with 75 hp motors or higher. If Carlos decides to purchase a smaller boat with a 50 hp motor as a result of the tax, which of the following statements is correct?

A. Carlos is worse off, and his loss of welfare is part of the deadweight loss of the tax.

B. In order to determine the size of the deadweight loss, we must add the revenues from the tax to the loss in Carlos's consumer surplus.

C. Other people who choose to purchase large boats will incur the cost of the deadweight loss of the tax.

D. There are no dead weight losses as long as some people still choose to purchase large boats.

Reference no: EM131194383

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