The diagram below shows supply and demand diagrams (S and D)for some product.The government then imposes an excise tax.The new supply curve is ST.
FIGURE 18- 4
-Refer to Figure 18- 4.What is the dollar value of the excess burden of this tax?

Question

The diagram below shows supply and demand diagrams (S and D)for some product.The government then imposes an excise tax.The new supply curve is ST.
  FIGURE 18- 4
-Refer to Figure 18- 4.What is the dollar value of the excess burden of this tax?

Quizplus · Accepted Answer

The excess burden of a tax is represented by the deadweight loss, which is the difference between the amount of economic surplus before and after the tax. In this case, the deadweight loss is the triangle between the original supply and demand curves and the new supply curve (ST). Using the formula for the area of a triangle, we can calculate the deadweight loss as follows:

Deadweight loss = (1/2) x (10-8) x (100-90) = $10

Therefore, the best choice is B, which corresponds to the dollar value of the excess burden (deadweight loss) of this tax being $10.

The Diagram Below Shows Supply and Demand Diagrams (S and D)for