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?
A)the maximum value that Rebecca would pay for dog sitting
B)the $30 tax
C)the lost benefit to Rebecca and Susan because after the tax,Susan will not dog sit for Rebecca
D)the lost benefit to Rebecca of being unable to hire a dog sitter because Rebecca is the one who would pay the tax

Question

Quizplus · Accepted Answer

Deadweight loss refers to the loss of economic efficiency that occurs as a result of market intervention, such as a tax. In this scenario, the tax has caused Susan to no longer be willing to dog sit for Rebecca, resulting in a lost benefit to both Rebecca and Susan. This lost benefit represents the deadweight loss of the tax. Choice A refers to Rebecca's willingness to pay, which is not relevant to the deadweight loss of the tax. Choice B refers to the tax itself, which is not the same as the deadweight loss. Choice D refers to a lost benefit to Rebecca, but it only considers Rebecca and does not mention Susan's lost benefit, which is also a part of the deadweight loss.

Suppose Rebecca Needs a Dog Sitter So That She Can