The deadweight loss from a tax is equal to one half of

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Quizplus · Accepted Answer

The deadweight loss from a tax is equal to the reduction in consumer and producer surplus resulting from the tax. This reduction occurs because the tax increases the price paid by consumers and reduces the price received by producers, thereby creating an inefficiency in the market. The decrease in quantity sold due to the tax is directly related to this inefficiency and is therefore the main determinant of the deadweight loss. Additionally, the amount of the tax is relevant because it affects the magnitude of the inefficiency, but not as much as the decrease in quantity sold. Therefore, the correct choice is D, which multiplies the tax amount by the decrease in quantity sold.

The Deadweight Loss from a Tax Is Equal to One