Suppose a tax of $5 per unit is imposed on a good.The supply curve and the demand curve are straight lines.The tax decreases consumer surplus by $10,000 and it decreases producer surplus by $15,000.The deadweight loss of the tax is $2,500.From this information it follows that the tax decreased the equilibrium quantity of the good
A)from 6,500 to 5,500.
B)from 5,500 to 4,500.
C)from 5,000 to 3,000.
D)from 6,000 to 4,000.

Question

Quizplus · Accepted Answer

The deadweight loss of $2,500 indicates a reduction in quantity traded due to the tax. The total loss in surplus (consumer + producer) is $25,000, and the tax revenue is $22,500 ($5 tax * 4,500 units). The difference between the initial and new equilibrium quantities is 1,000 units, consistent with option B.

Suppose a Tax of $5 Per Unit Is Imposed on a Good.The