Figure 8-6

-Refer to Figure 8-6.The deadweight loss associated with this tax amounts to
A)$60, and this figure represents the amount by which tax revenue to the government exceeds the combined loss of producer and consumer surpluses.
B)$60, and this figure represents the surplus that is lost because the tax discourages mutually advantageous trades between buyers and sellers.
C)$40, and this figure represents the amount by which tax revenue to the government exceeds the combined loss of producer and consumer surpluses.
D)$40, and this figure represents the surplus that is lost because the tax discourages mutually advantageous trades between buyers and sellers.

Question

Figure 8-6
 
-Refer to Figure 8-6.The deadweight loss associated with this tax amounts to
A)$60, and this figure represents the amount by which tax revenue to the government exceeds the combined loss of producer and consumer surpluses. 
B)$60, and this figure represents the surplus that is lost because the tax discourages mutually advantageous trades between buyers and sellers. 
C)$40, and this figure represents the amount by which tax revenue to the government exceeds the combined loss of producer and consumer surpluses. 
D)$40, and this figure represents the surplus that is lost because the tax discourages mutually advantageous trades between buyers and sellers.

Quizplus · Accepted Answer

The deadweight loss is the amount by which the mutually advantageous trades between buyers and sellers are discouraged due to the tax. In this case, the deadweight loss is equal to the triangle between the original supply and demand curves and the new supply and demand curves after the tax. The height of this triangle is $10, and the base is 4 units, so the deadweight loss is equal to $40. Option D is the correct answer. Option A is incorrect because it incorrectly refers to tax revenue exceeding the combined loss of producer and consumer surplus. Option B is incorrect because it refers to "surplus" lost, but the deadweight loss is not a surplus. Option C is also incorrect because it states that the deadweight loss is $40 more than it actually is.

Figure 8-6 -Refer to Figure 8-6.The Deadweight Loss Associated with This Tax