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A-Level Economics · Laffer curve diagram question

Which point on the curve is the REVENUE-MAXIMISING tax rate?

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The diagram

The answer

Point B. The top of the curve, at rate t*: point B. Every rate either side of it raises less. The revenue-maximising rate is the TOP of the inverted U — point B, at tax rate t*, giving Rmax. Read it down to the rate axis and across to the revenue axis. Below t* you are still climbing; above t* you are throwing revenue away.

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This is one of 5 questions on the laffer curve diagram — every corner lettered, every wrong answer diagnosed.

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