Figure 8-5

-Refer to Figure 8-5.The tax results in a deadweight loss that amounts to
A)$600.
B)$900.
C)$1,500.
D)$1,800.

Question

Figure 8-5
 
-Refer to Figure 8-5.The tax results in a deadweight loss that amounts to
A)$600. 
B)$900. 
C)$1,500. 
D)$1,800.

Quizplus · Accepted Answer

The deadweight loss is equal to the reduction in consumer and producer surplus caused by the tax, which is the yellow shaded triangle in the graph. Using the formula for the area of a triangle, we can calculate the deadweight loss as 1/2 x base x height. The base of the triangle is 30 (quantity) and the height is $50 (price). Therefore, the deadweight loss is (1/2) x 30 x $50 = $750. Since the tax revenue is $750 - $250 = $500, the net loss to society (deadweight loss) is $750 - $500 = $250. However, the deadweight loss is incurred by both producers and consumers, so we need to multiply by 2 to get the total deadweight loss of $500 per day. Over a 3-day period, this amounts to $1,500.

Figure 8-5 -Refer to Figure 8-5.The Tax Results in a Deadweight Loss