The following figure shows the supply and demand curves in a competitive market for a good. The government is considering a $1.50 tax on this good.

-Refer to the figure above. If the $1.50 tax is collected from the producers of this good, the deadweight loss of this taxation will be ________.

Question

The following figure shows the supply and demand curves in a competitive market for a good. The government is considering a $1.50 tax on this good.
 
-Refer to the figure above. If the $1.50 tax is collected from the producers of this good, the deadweight loss of this taxation will be ________.

Quizplus · Accepted Answer

The deadweight loss of a tax is represented by the reduction in the quantity of transactions from the equilibrium quantity, which leads to a loss in consumer and producer surplus that is not offset by tax revenue. In this case, the deadweight loss is the area of the triangle formed by the tax-induced price difference and the reduction in quantity, which is $0.75.

The Following Figure Shows the Supply and Demand Curves in a Competitive