For widgets, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. A tax of $15 per unit is imposed on widgets. The tax reduces the equilibrium quantity in the market by 250 units. The deadweight loss from the tax is
A)$3,750.
B)$1,875.
C)$132.5.
D)$117.5.

Question

Quizplus · Accepted Answer

The deadweight loss (DWL) from a tax is calculated as the area of the triangle formed by the tax-induced reduction in quantity. The formula for the area of a triangle is 0.5 * base * height. Here, the base is the reduction in quantity (250 units), and the height is the tax amount ($15). Thus, DWL = 0.5 * 250 * 15 = $1,875.

For Widgets, the Supply Curve Is the Typical Upward-Sloping Straight