Figure 18-2

Figure 18-2 shows a demand curve and two sets of supply curves, one set more elastic than the other.
-Refer to Figure 18-2.If the government imposes an excise tax of $1.00 on every unit sold, what is the size of the deadweight loss, if there is any?
A)the area adc if the supply curve is S₀ and the area bec if the supply curve is S₁.
B)the area afcd if the supply curve is S₀ and the area bfce if the supply curve is S₁.
C)the area becf under either supply curve.
D)There is no deadweight loss; revenue raised is used to fund government projects.

Question

Figure 18-2
  
Figure 18-2 shows a demand curve and two sets of supply curves, one set more elastic than the other.
-Refer to Figure 18-2.If the government imposes an excise tax of $1.00 on every unit sold, what is the size of the deadweight loss, if there is any?
A)the area adc if the supply curve is S₀ and the area bec if the supply curve is S₁. 
B)the area afcd if the supply curve is S₀ and the area bfce if the supply curve is S₁. 
C)the area becf under either supply curve. 
D)There is no deadweight loss; revenue raised is used to fund government projects.

Quizplus · Accepted Answer

The deadweight loss from a tax is the loss in total surplus that occurs because the tax discourages mutually beneficial trades. It is represented by the area between the supply and demand curves over the range of quantities that are no longer traded due to the tax. If the supply curve is S₀, the deadweight loss is the area adc, and if the supply curve is S₁, it is the area bec.

Figure 18-2 Figure 18-2 Shows a Demand Curve and Two Sets of Curve