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Figure: Soda Market
-(Figure: Soda Market) Suppose the U.S. Congress passes a tax of $0.70 on each can of soda. Using the diagram and the "wedge shortcut," determine how much deadweight loss this would create.
A) $10,500
B) $21,000
C) $35,000
D) $70,000

Question

Use the following to answer questions:
Figure: Soda Market 
-(Figure: Soda Market) Suppose the U.S. Congress passes a tax of $0.70 on each can of soda. Using the diagram and the "wedge shortcut," determine how much deadweight loss this would create.
A) $10,500 
B) $21,000 
C) $35,000 
D) $70,000

Quizplus · Accepted Answer

The deadweight loss is the area of the triangle formed by the tax wedge. The base of the triangle is the change in quantity, which is 30,000 cans. The height of the triangle is the tax per can, which is $0.70. Therefore, the area of the triangle is (1/2) * 30,000 * $0.70 = $10,500.

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