The figure shows the weekly market for hamburgers at the Tasty Burger Palace. If

Question

The figure shows the weekly market for hamburgers at the Tasty Burger Palace. If the market is originally in equilibrium and the government then imposes an excise tax of $0.80 per unit of the good sold, the deadweight loss associated with the tax will be:

a. $240. b. $40. c. $90. d. $105. The figure shows the weekly market for hamburgers at the Tasty Burger Palace. If the market is originally in equilibrium and the government then imposes an excise tax of $0.80 per unit of the good sold, the deadweight loss associated with the tax will be: Choose one answer. a. $240. b. $40. c. $90. d. $105.

Explanation / Answer

b) $40 Dead weight loss is given by the triangle between the dots on the S1 and D1 cure at 300 units and the equilibrium point at 400 units. Dead weight loss = 0.5 x ( price buyers pay - price sellers receive) x ( Equilibrium quantity without tax- quantity demanded with tax) Based on the above figure price buyers pay is $2 and price sellers receive is $1.20 Equilibrium quantity without tax is 400 units and quantity demanded with tax is 300 units Dead weight loss = 0.5 x ( 2 - 1.20) x ( 400-300)                               =0.5 x ( 0.80) x (100)                               = $40 Deadweight loss=$40 ( Area of the triangle= 0.5 x base x height)

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