Question

In the market for widgets, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. The equilibrium quantity in the market for widgets is 200 per month when there is no tax. Then a tax of $5 per widget is imposed. The price paid by buyers increases by $2 and the after-tax price received by sellers falls by $3. The government is able to raise $750 per month in revenue from the tax. The deadweight loss from the tax is ____________

Answer 1

the deadweight loss from the tax is $125

Step-by-step explanation:

The computation of the deadweight loss from the tax is shown below:

After tax quantity is

= $750 ÷ $5

= 150 widgets

And, the deadweight loss from tax is

= 0.5 × [$5 × (200 - 150)]

= $125

Hence, the deadweight loss from the tax is $125

The same would be considered and relevant too