Use the figure below to answer the following question(s). Figure 4-9
Refer to Figure 4-9. The market for gasoline was initially in equilibrium at point b and a $.40 excise tax is illustrated. What does the triangular area abc represent?
A) the revenue the government derives from the tax
B) the tax paid by consumers
C) the tax paid by producers
D) the deadweight loss (or excess burden) created by the tax

Question

Use the figure below to answer the following question(s). Figure 4-9
 Refer to Figure 4-9. The market for gasoline was initially in equilibrium at point b and a $.40 excise tax is illustrated. What does the triangular area abc represent?
A) the revenue the government derives from the tax 
B) the tax paid by consumers 
C) the tax paid by producers 
D) the deadweight loss (or excess burden) created by the tax

Quizplus · Accepted Answer

The triangular area abc represents the deadweight loss (or excess burden) created by the tax. This area represents the reduction in consumer and producer surplus that occurs as a result of the tax, and represents resources that are lost to society as a whole. The government revenue from the tax is represented by the rectangle BEFC, and the tax paid by consumers and producers is indicated by the vertical distance between the new equilibrium quantity and the old equilibrium quantity (Q2-Q1), multiplied by the amount of the tax (T).

Use the Figure Below to Answer the Following Question(s)