Question

Suppose Rebecca needs a dog sitter so that she can travel to her sister’s wedding. Rebecca values dog sitting for the weekend at $200. Susan is willing to dog sit for Rebecca so long as she receives at least $175. Rebecca and Susan agree on a price of $185. Suppose the government imposes a tax of $30 on dog sitting. What is the deadweight loss of the tax?

Answer 1

Answer: $25

Step-by-step explanation:

Given Data:

Rebecca value for dog sitting = $200

Susan’s minimum agreed price = $175

Rebecca and Susan agreed price = $185

Government tax on dog sitting = $30

Dead weight loss = Rebecca value - Susan list price

= $200 - $175

= $25

The dead weight loss of tax is $25

Answer 2

The deadweight loss of the tax is $25

Step-by-step explanation:

In order to calculate the deadweight loss of the tax we would have to make the following calculation:

deadweight loss of the tax=maximum willingness to pay - minimum willingness to accept

maximum willingness to pay=$200

minimum willingness to accept =$175

deadweight loss of the tax=$200-$175

deadweight loss of the tax=$25

The deadweight loss of the tax is $25