Refer to Scenario 19.3 below to answer the question(s) that follow.
SCENARIO 19.3: Suppose demand for widgets is given by the equation P = 20 - 0.5Q. Originally, the price of the good is $10 per unit. When a tax of $2 per unit is imposed, the price of the good rises to $12 per unit.
-Refer to Scenario 19.3. What is the excess burden of the tax?

Question

Quizplus · Accepted Answer

The excess burden (or deadweight loss) of a tax is calculated as the area of the triangle formed between the original and new quantity demanded. The original quantity is 20 units (since 20 - 0.5*20 = 10), and the new quantity is 16 units (since 20 - 0.5*16 = 12). The excess burden is 0.5 * (20 - 16) * 2 = $4.