The supply curve and the demand curve for widgets are straight lines.Suppose the equilibrium quantity in the market for widgets is 200 per month when there is no tax.Then a tax of $5 per widget is imposed.The price paid by buyers increases by $2 and the after-tax price received by sellers falls by $3.The government is able to raise $750 per month in revenue from the tax.The deadweight loss from the tax is
A)$250.
B)$125.
C)$75.
D)$50.

Question

Quizplus · Accepted Answer

The deadweight loss (DWL) is calculated using the formula: DWL = 0.5 * (change in quantity) * (tax per unit). The tax per unit is $5, and the change in quantity can be found from the tax revenue: $750 = $5 * new quantity, so new quantity = 150. The change in quantity is 200 - 150 = 50. Thus, DWL = 0.5 * 50 * 5 = $125.

The Supply Curve and the Demand Curve for Widgets Are