Question

a tax of 0.19 dollars is imposed on each baga of potato chips that is sold. the tax generates revenue of approx 10,000 dollars and ddecreases the equilibrium wuantyiy of potato chips by 156 bags per day/ the tax creates a deadweight lsos of how many dollars

Answer 1

The tax creates a deadweight loss of $29.64 dollars per day.

Explanation:

a) A bag of potato chips generates $0.19 per bag

If 156 bags are not sold each day because of the imposed tax, the deadweight loss is calculated as follows:

156 x $0.19 = $29.64 per day

b) A deadweight loss is the inefficiency cost imposed by the tax because it causes decreases the equilibrium quantity of bags of potato chips sold each day by 156. By dislocating the equilibrium and the market forces, the tax makes the economy to suffer overall. This may imply that the rate of the tax was not economically reasonable. Unless a tax is imposed to discourage an activity or a consumption, the rate should not be so high as to create inefficiencies in the allocation of economic resources.