Suppose that a market is initially in equilibrium.The initial demand curve is The initial supply curve is Suppose that the government imposes a $3 tax on this market.What is the dead-weight loss due to the tax?

Question

Suppose that a market is initially in equilibrium.The initial demand curve is  The initial supply curve is  Suppose that the government imposes a $3 tax on this market.What is the dead-weight loss due to the tax?

Quizplus · Accepted Answer

The tax shifts the supply curve up by $3, resulting in a new equilibrium price of $6 and a quantity of 4.5. The deadweight loss is the triangle formed by the original equilibrium, the new equilibrium, and the demand curve. The base of the triangle is (8-6)=2 and the height is (7-4.5)=2.5. Therefore, the deadweight loss is 0.5*(2)*(2.5)=$1.50.

Suppose That a Market Is Initially in Equilibrium