Figure 8-2

-Refer to Figure 8-2.Which of the following equations is valid for the deadweight loss of the tax?
A)Deadweight loss = (1/2)(P₂ - P₁)(Q₂ + Q₁)
B)Deadweight loss = (1/2)(P₃ - P₁)(Q₂ + Q₁)
C)Deadweight loss = (1/2)(P₃ - P₂)(Q₂ - Q₁)
D)Deadweight loss = (1/2)(P₃ - P₁)(Q₂ - Q₁)

Question

Figure 8-2
 
-Refer to Figure 8-2.Which of the following equations is valid for the deadweight loss of the tax?
A)Deadweight loss = (1/2)(P₂ - P₁)(Q₂ + Q₁) 
B)Deadweight loss = (1/2)(P₃ - P₁)(Q₂ + Q₁) 
C)Deadweight loss = (1/2)(P₃ - P₂)(Q₂ - Q₁) 
D)Deadweight loss = (1/2)(P₃ - P₁)(Q₂ - Q₁)

Quizplus · Accepted Answer

Deadweight loss is the loss of economic efficiency that occurs when equilibrium for a good or service is not achieved or is not achievable. It occurs when the price or quantity of a good is distorted from its equilibrium price and quantity as a result of a tax or price control. In this case, the deadweight loss can be calculated using the formula:
Deadweight loss = (1/2)(P₃ - P₁)(Q₂ - Q₁) 
where P₃ is the price paid by buyers, P₁ is the price received by sellers, Q₂ is the quantity bought by buyers, and Q₁ is the quantity sold by sellers.
Option D is the correct choice as it matches with the given formula for the calculation of deadweight loss.

Figure 8-2 -Refer to Figure 8-2.Which of the Following Equations Is Valid