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Why does a tax create a deadweight loss

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Reference no: EM13321672

1. Suppose the government wants to increase farmers" incomes. Why do price supports or acreage-limitation programs cost society more than simply giving farmers money?

2. Suppose the government wants to limit imports of a certain good. Is it preferable to use an import quota or a tariff? Why?

3. The burden of a tax is shared by producers and consumers. Under what conditions will consumers pay most of the tax? Under what conditions will producers pay most of it? What determines the share of a subsidy that benefits consumers?

4. Why does a tax create a deadweight loss? What determines the size of this loss?

Reference no: EM13321672

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