(Figure: Determining Tax Burdens) Based on the graph, the original market price is $4. The graph depicts a tax of with a corresponding deadweight loss of Price ($) 9876543 S₂ X D S₁ 0 50 100 150 200 250 300 350 400 450 500 550 600 Quantity

(Figure: Determining Tax Burdens) Based on the graph, the original market price is $4. The graph depicts a tax of with a corresponding deadweight loss of Price ($) 9876543 S₂ X D S₁ 0 50 100 150 200 250 300 350 400 450 500 550 600 Quantity

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

(Figure: Determining Tax Burdens) Based on the graph, the original market price is $4. The graph depicts a tax of
with a corresponding deadweight loss of
Price ($)
98765432 T
X
D
0 50 100 150 200 250 300 350 400 450 500 550 600
Quantity
$6; $3
$3; $150
$6; 50 units
$3; $75

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On the following graph, use the black curve (plus symbols) to illustrate the deadweight loss in these cases. (Hint: Remember that the area of a triangle is equal to x Base × Height. In the case of a deadweight loss triangle found on the graph input tool, the base is the amount of the tax and the height is the reduction in quantity caused by the tax.) 2400 2160 1920 Deadweight Loss 1680 1440 1200 960 720 480 240 10 20 30 40 50 60 70 80 90 100 TAX (Dollars per bottle) As the tax per bottle increases, deadweight loss DEADWEIGHT LOSS (Dollars)
2
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