Asked by Diana Olvera on Jul 20, 2024
Verified
Refer to Figure 8-10. Suppose the government places a $3 tax per unit on this good. How much is the deadweight loss from this tax?
Deadweight Loss
A loss of economic efficiency that can occur when the equilibrium for a good or a service is not achieved, leading to a mismatch between supply and demand.
Tax
A non-negotiable pecuniary charge or alternate levy directed at a taxpayer by a government authority to underwrite the costs of government functioning and various public funding requirements.
Good
An item or product that can be used to satisfy a want or need.
- Compute the deadweight loss that arises due to taxation.
Verified Answer
TI
Tahmid IslamJul 25, 2024
Final Answer :
The deadweight loss from this tax is 0.5 x (80-60) x (6-3) = $30. Another way to calculate deadweight loss is to subtract the total surplus after the tax from the total surplus before the tax, which equals $480 - $450.
Learning Objectives
- Compute the deadweight loss that arises due to taxation.