Reference: Ref 6-2 (Figure: Tax on Sellers of Gadgets) According to the figure, what is the amount of the deadweight loss caused by the imposition of the tax on gadgets?

Question

Quizplus · Accepted Answer

The deadweight loss is the triangle between the supply and demand curves, bounded by the vertical lines of the quantity exchanged with and without the tax. The top of the triangle is at a price of $24, and the quantity exchanged is 8 gadgets. The difference between the price with and without the tax is $2, so the deadweight loss is 1/2 * 2 * 8 = $8. Since the tax is $6, the remaining deadweight loss is $6 - $2 = $4. Therefore, the total deadweight loss is $8 + $4 = $12. However, the tax revenue is $62, which would suggest that the deadweight loss is $31 (half of the tax revenue). This difference is due to the fact that the tax revenue includes the transfer from consumers to producers, which does not represent a welfare loss. Therefore, the correct answer is $50 ($12 deadweight loss + $38 transfer).