Suppose Jack values an ice cream sundae at $4.Dianne values an ice cream sundae at $6.The pre-tax price of an ice cream sundae is $2.The government imposes a "fat tax" of $3 on each ice cream sundae,and the price rises to $5.The deadweight loss from the tax is
A) $1.
B) $2.
C) $3.
D) $4.

Question

Quizplus · Accepted Answer

The deadweight loss from the tax is the loss in consumer and producer surplus that results from the tax. In this case, the consumer surplus loss is $2 (the difference between the pre-tax price of $2 and the post-tax price of $5) and the producer surplus loss is $1 (the difference between the pre-tax price of $2 and the post-tax price of $3). The total deadweight loss is therefore $2 + $1 = $3.

Suppose Jack Values an Ice Cream Sundae at $4