Question

Suppose a tax is imposed on each new hearing aid that is sold. The supply curve is a typical upward-sloping straight line, and the demand curve is a typical downward-sloping straight line. As a result of the tax, the equilibrium quantity of hearing aids decreases from 10,000 to 9,000, and the deadweight loss of the tax is $60,000. We can conclude that the tax on each hearing aid is:

Answer 1

The tax on hearing aid is $120 per unit.

Step-by-step explanation:

The supply curve for hearing aid is a typical upward-sloping straight line, and the demand curve is a typical downward-sloping straight line.

A tax is imposed on each unit of hearing aid.

As a result of the tax, the equilibrium quantity of hearing aids decreases from 10,000 to 9,000.

The deadweight loss of the tax is $60,000.

Deadweight loss =
`(1)/(2)\ (Q1 - Q2)\ *\ Tax`

$60,000 =
`(1)/(2)\ (10,000 - 9,000)\ *\ Tax`

$60,000 =
`500\ *\ Tax`

Tax =
`(60,000)/(500)`

Tax = $120