Figure 5-2 shows the quantity demanded of a good at various prices.
-Based on Figure 5-2,the welfare cost of an excise tax (that raises price from P₂ to P₁) is the area _____.

Question

Figure 5-2 shows the quantity demanded of a good at various prices.

-Based on Figure 5-2,the welfare cost of an excise tax (that raises price from P₂ to P₁) is the area _____.

Quizplus · Accepted Answer

The welfare cost of an excise tax is represented by the deadweight loss, which is the area of the triangle formed by the supply and demand curves between the new and old equilibrium quantities, typically labeled as ADC.

Figure 5-2 Shows the Quantity Demanded of a Good at Various