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Sagot :
A consequence of the tax is that consumer surplus shrinks by $5 and tax revenues increase by $4, so there is a deadweight loss of $1. Thus, the correct answer is option D.
What is a deadweight loss?
A deadweight loss is a societal cost caused by market inefficiency, which occurs when supply and demand are not in balance. Deadweight loss, which is most commonly used in economics, can be applied to any deficiency caused by inefficient resource allocation.
A deadweight loss is the difference between the production and consumption of a particular product or service, including government taxes. When the quantity produced relative to the amount consumed differs from the optimal concentration of surplus, the presence of deadweight loss is most commonly identified.
Therefore, consumer surplus shrinks by $5 and tax revenues increase by $4, so there is a deadweight loss of $1 as a consequence of the government tax on fencing lesson.
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