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Figure: Tax on Sellers of Gadgets
-(Figure: Tax on Sellers of Gadgets) According to the figure, what is the amount of the deadweight loss caused by the imposition of the tax on gadgets?
A) $100
B) $1
C) $0.50
D) $50

Question

Use the following to answer questions:
Figure: Tax on Sellers of Gadgets 
-(Figure: Tax on Sellers of Gadgets) According to the figure, what is the amount of the deadweight loss caused by the imposition of the tax on gadgets?
A) $100 
B) $1 
C) $0.50 
D) $50

Quizplus · Accepted Answer

The deadweight loss caused by the imposition of the tax on gadgets is the triangular area between the supply curve and the demand curve, from the quantity sold before the tax to the quantity sold after the tax. In this case, the deadweight loss is $50, which is half the product of the tax ($2) and the reduction in quantity sold (25 units). Therefore, D is the correct answer.

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