Question

Suppose Max values a concert ticket at $45. Charles values the same concert ticket at $40. The pre-tax price of a concert ticket is $30. The government imposes a tax of $5 on each concert ticket, and the price rises to $35. The deadweight loss from the tax is _________.

a. $15.b. $10.c. $5.d. $0.

Answer 1

D) $0.

Step-by-step explanation:

A deadweight loss refers to the loss of total economic efficiency due to a tax or a binding price ceiling or price floor. It is represented by the loss of economic surplus (both supplier and consumer surplus) due to a lower quantity sold.

In this case, the tax raised the price of the concert tickets to $35, from $30 which was the previous price. But that $35 is still lower than what max and Charles were willing to pay for the tickets, so they will still go to the concert. So the quantity sold (2) wasn't affected by the tax, so there is no deadweight loss.

Answer 2

$10

Step-by-step explanation:

Deadweight loss of tax is the loss in economic efficiency as a result of tax. It is the reduction in consumer and producer surplus as a result of tax.

Before the tax, consumer surplus :

For max = $45 - $30 = $15

For Charles = $40 - $30 = $10

Total consumer surplus = $25

After the tax, consumer surplus -

For Max = $45 - $35 = $10

For Charles = $40 - $35 = $5

Total consumer surplus = $15

Loss in consumer surplus = $25 - $15 = $10

I hope my answer helps you