Question

Suppose a tax of $5 per unit is imposed on a good, and the tax causes the equilibrium quantity of the good to decrease from 200 units to 100 units. The tax decreases consumer surplus by $450 and decreases producer surplus by $300. The deadweight loss from the tax is:_____

Answer 1

Answer:

$250

Explanation:

Deadweight loss from the tax = 1/2*Tax rate*(Quantity change)

Deadweight loss from the tax = 1/2* $5 * (200-100)

Deadweight loss from the tax = 1/2* $5 * 100

Deadweight loss from the tax = $250

Thus, the deadweight loss from the tax is $250