Scenario 12-1
Suppose Jeremy and Kelsey receive great satisfaction from their consumption of turkey.Kelsey would be willing to purchase only one slice and would pay up to $5 for it.Jeremy would be willing to pay $8 for his first slice, $6 for his second slice, and $2 for his third slice.The current market price is $2 per slice.
-Refer to Scenario 12-1.If a tax of $4 is levied on each slice of turkey,what is the deadweight loss of the tax
A)$3
B)$6
C)$8
D)$9

Question

Quizplus · Accepted Answer

The deadweight loss of a tax is the loss of consumer and producer surplus that results from the imposition of the tax. In this case, the tax of $4 per slice reduces the quantity of turkey consumed from 3 slices to 1 slice. The consumer surplus lost is the difference between the amount consumers were willing to pay for the 3 slices ($5 + $8 + $6 = $19) and the amount they actually paid ($2 + $2 + $2 = $6). The producer surplus lost is the difference between the amount producers were willing to accept for the 3 slices ($2 + $2 + $2 = $6) and the amount they actually received ($2). The total deadweight loss is the sum of the consumer and producer surplus lost, which is $19 - $6 + $6 = $19.

Scenario 12-1 Suppose Jeremy and Kelsey Receive Great Satisfaction from Their Consumption