Use the following to answer questions:
Figure: Imposition of a Tax
-(Figure: Imposition of a Tax) Refer to the figure. With a $4 tax, the deadweight loss is:
A) $10.
B) $35.
C) $20.
D) $40.

Question

Use the following to answer questions:
Figure: Imposition of a Tax 
-(Figure: Imposition of a Tax) Refer to the figure. With a $4 tax, the deadweight loss is:
A) $10. 
B) $35. 
C) $20. 
D) $40.

Quizplus · Accepted Answer

The deadweight loss with a $4 tax is the shaded area between the demand and supply curves and above the equilibrium quantity. This area measures the loss of economic surplus due to the tax. In this case, the deadweight loss is $20, which is the difference between the economic surplus without the tax (represented by the triangle ABC) and the economic surplus with the tax (represented by the triangle ADE). Therefore, choice C is the correct answer.

Use the Following to Answer Questions