Use the following figure to answer the question: Figure 5-2 :shows the quantity demanded of a good at various prices.
-Based on Figure 5-2,the welfare cost of an excise tax (that raises price from P₂ to P₁) is the area _____.

Question

Use the following figure to answer the question: Figure 5-2 :shows the quantity demanded of a good at various prices.

-Based on Figure 5-2,the welfare cost of an excise tax (that raises price from P₂ to P₁) is the area _____.

Quizplus · Accepted Answer

The welfare cost of an excise tax is represented by the deadweight loss, which is the area of the triangle formed by the reduction in quantity traded due to the tax. This is typically shown as the area between the supply and demand curves, above the original price and below the new price, which is area ADC.

Use the Following Figure to Answer the Question: Figure