Figure 8-2

-Refer to Figure 8-2.What area represents the amount of deadweight loss associated with the tax
A)P₃ACP₁
B)ABC
C)P₂DAP₃
D)P₁CDP₂

Question

Figure 8-2
 
-Refer to Figure 8-2.What area represents the amount of deadweight loss associated with the tax
A)P₃ACP₁ 
B)ABC 
C)P₂DAP₃ 
D)P₁CDP₂

Quizplus · Accepted Answer

Deadweight loss is the loss of economic efficiency that occurs when the equilibrium for a good or service is not achieved due to market inefficiencies, such as taxes. In this figure, deadweight loss is represented by the triangle ABC. This is because the tax causes the price to increase from P₁ to P₃, reducing the quantity of goods sold from Q₁ to Q₃. This reduction in quantity results in the loss of surplus for both producers and consumers, as well as the additional cost of the tax. Thus, the area of triangle ABC represents the deadweight loss associated with the tax.

Figure 8-2 -Refer to Figure 8-2.What Area Represents the Amount of Deadweight