Figure 8-11

-Refer to Figure 8-11.Suppose Q₁ = 4; Q₂ = 7; P₁ = $6; P₂ = $8; and P₃ = $10.Then,when the tax is imposed,

Question

Figure 8-11
 
-Refer to Figure 8-11.Suppose Q₁ = 4; Q₂ = 7; P₁ = $6; P₂ = $8; and P₃ = $10.Then,when the tax is imposed,

Quizplus · Accepted Answer

With the given values, the demand curve is as shown in the diagram. The imposition of tax shifts the supply curve upwards from S to S+t, resulting in a new equilibrium at point E. The price paid by consumers (P1+tax) increases to $8 and the price received by producers decreases to $6, resulting in a loss of consumer and producer surplus. The deadweight loss is the loss of surplus due to the reduction in the quantity sold caused by the tax. In this case, the deadweight loss is the triangle ABC, which has a base of 3 units and a height of $2. Thus, the deadweight loss amounts to $6. Answer choices A, B, and D are incorrect because they do not accurately reflect the effect of the tax on consumer and producer surplus or the quantity sold.

Figure 8-11 -Refer to Figure 8-11.Suppose Q₁ = 4; Q₂ = 7;