Assume the social marginal benefit of remote-control drone flights is given by SMB = 200 - 2Q and the marginal cost is given by MC = 3Q + 50. The government wants to correct the negative externality associated with remote-control drone flights by taxing operators $20 per flight. If the proposed tax accurately reflects their marginal external costs, the deadweight loss associated with unrestricted remote-control drone flights is _____.
A) 30
B) 35
C) 40
D) 45

Question

Quizplus · Accepted Answer

The deadweight loss (DWL) is calculated by finding the difference in quantity between the social optimum and the market equilibrium without government intervention. First, find the social optimum where SMB = MC, which gives 200 - 2Q = 3Q + 50, solving for Q gives Q = 30. Without the tax, the market equilibrium is where private benefit equals MC, but since the tax is said to accurately reflect the marginal external costs, the social optimum is also the market equilibrium with the tax. Therefore, without the tax, the market would not internalize the externality, and the quantity would be different. However, the question asks for the DWL associated with unrestricted flights, which is zero because the tax perfectly internalizes the externality, making the question's premise misleading. The correct approach to find the DWL before the tax is implemented involves comparing the optimal quantity (30) to the actual quantity without intervention, but the information provided does not specify the quantity without the tax, leading to an incorrect interpretation in the explanation. The DWL calculation typically involves the area of the triangle formed by the difference in quantities and prices, but without clear quantities before and after the tax, the direct calculation of DWL is not provided. The correct answer should focus on understanding the impact of the tax on aligning the market outcome with the social optimum, eliminating the DWL associated with the externality.

Assume the Social Marginal Benefit of Remote-Control Drone Flights Is