Figure 8-3 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-3. Which of the following equations is valid for the deadweight loss of the tax? A)Deadweight loss = (1/2)(P2 - P1)(Q2 + Q1) B)Deadweight loss = (1/2)(P3 - P1)(Q2 + Q1) C)Deadweight loss = (1/2)(P3 - P2)(Q2- Q1) D)Deadweight loss = (1/2)(P3 - P1)(Q2- Q1)

Question

Quizplus · Accepted Answer

The deadweight loss of a tax is the loss of consumer and producer surplus that results from the imposition of the tax. In Figure 8-3, the deadweight loss is represented by the triangle P2P3Q2. The height of the triangle is (P3 - P2), and the base is (Q2 - Q1). Therefore, the deadweight loss is (1/2)(P3 - P2)(Q2 - Q1).

Figure 8-3 the Vertical Distance Between Points a and C Represents a Represents