Figure 8-5

-Refer to Figure 8-5.What would be the deadweight loss in this market as a result of the tax
A)$600
B)$900
C)$1500
D)$1800

Question

Figure 8-5
 
-Refer to Figure 8-5.What would be the deadweight loss in this market as a result of the tax
A)$600 
B)$900 
C)$1500 
D)$1800

Quizplus · Accepted Answer

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 is implemented. In the graph, this triangle has a height of 15 (the difference between the pre-tax price of $20 and the post-tax price of $35) and a base of 30 (the difference between the pre-tax quantity of 20 and the post-tax quantity of 10). Therefore, the deadweight loss is (1/2) x 15 x 30 = $225. Since the tax is $7 per unit, the total tax revenue is $70 ($7 per unit times 10 units), leaving a deadweight loss of $1500 ($1570 - $70). Therefore, the correct answer is C, $1500.

Figure 8-5 -Refer to Figure 8-5.What Would Be the Deadweight Loss in the Deadweight