Wilma values a decorative garden rock at $15, while Fred values it at $10. The price of a decorative garden rock is $9. If the government imposes a $2 tax per decorative garden rock and the price of the rock rises to $11, what part of the deadweight loss comes from Wilma, and what part comes from Fred?
A)none comes from Wilma; $1 comes from Fred
B)none comes from Wilma; $3 comes from Fred
C)$2 comes from Wilma; $1 comes from Fred
D)$4 comes from Wilma; $3 comes from Fred

Question

Quizplus · Accepted Answer

The deadweight loss is the difference between the price of the rock without the tax and the price of the rock with the tax. In this case, the deadweight loss is $11 - $9 = $2. Wilma values the rock at $15, so she is willing to pay up to $15 for it. The tax increases the price of the rock to $11, so Wilma is now only willing to pay $13 for it. The deadweight loss from Wilma is therefore $15 - $13 = $2. Fred values the rock at $10, so he is willing to pay up to $10 for it. The tax increases the price of the rock to $11, so Fred is now only willing to pay $9 for it. The deadweight loss from Fred is therefore $10 - $9 = $1.

Wilma Values a Decorative Garden Rock at $15, While Fred