(Figure: Tax on Sellers of Gadgets) According to the figure,what is the amount of the deadweight loss caused by theimposition of the tax on gadgets?

Question

Quizplus · Accepted Answer

The deadweight loss is the triangular area between the supply and demand curves and above the price inclusive of the tax. In this case, the deadweight loss triangle has a height of $5 and a base of 10 gadgets, making its area equal to 1/2 x $5 x 10 = $25. Since the tax reduces the quantity sold from 15 to 10 gadgets, the price inclusive of the tax increases from $5 to $6.50. The net loss in consumer and producer surplus is equal to area ABGH, which is another triangular area with a height of $1.50 and a base of 10 gadgets, making its area equal to 1/2 x $1.50 x 10 = $7.50. Therefore, the total deadweight loss is $25 + $7.50 = $32.50. Since the tax revenue is equal to $1 per gadget x 10 gadgets = $10, the actual loss in economic surplus is $32.50 - $10 = $22.50. Therefore, the correct answer is D) $50, which is the closest option to the calculated amount of deadweight loss.

(Figure: Tax on Sellers of Gadgets) According to the Figure,what