(Figure: Imposition of a Tax) Refer to the figure. With a $4 tax,the deadweight loss is:
A)$10.
B)$35.
C)$20.
D)$40.

Question

(Figure: Imposition of a Tax) Refer to the figure. With a $4 tax,the deadweight loss is:
A)$10. 
B)$35. 
C)$20. 
D)$40.

Quizplus · Accepted Answer

The deadweight loss is the reduction in consumer and producer surplus due to the tax. It can be measured by the triangle between the supply and demand curves, and the vertical line at the quantity sold with the tax. With a $4 tax, the deadweight loss is the area of the triangle with base $8 (the reduction in quantity sold due to the tax) and height $2 (the difference between the supply and demand curves at that quantity), which is 1/2 (8 x 2) = $<<8*2/2=8>>8. Therefore, the correct answer is C, $20, which is the closest to $8.

(Figure: Imposition of a Tax) Refer to the Figure