The figure below shows the demand (D) and supply (S) curves for Good X before and after a tax is imposed on each unit of the good sold.

-Refer to the figure above.If a per-unit tax of $1.50 is imposed on the sale of Good X,what is the size of the deadweight loss due to taxation?

Question

The figure below shows the demand (D) and supply (S) curves for Good X before and after a tax is imposed on each unit of the good sold.
 
-Refer to the figure above.If a per-unit tax of $1.50 is imposed on the sale of Good X,what is the size of the deadweight loss due to taxation?

Quizplus · Accepted Answer

The deadweight loss is the area of the triangle formed by the intersect of the supply curve and demand curve, minus the area of the new rectangle formed after the tax is imposed. Using the numbers given in the graph, the deadweight loss would be:

(20-15) x (10-5) / 2 - (18-15) x (10-5) = $7.5 million.

The Figure Below Shows the Demand (D) and Supply (S)