Question

Demand = 20-P; Supply = P/3; both linear. What is deadweight loss associated with a $4/unit output tax levied on consumers?

Answer 1

Given

$Qd=20-p\\Qs=\frac{P}{3}$

Now we put unit tax of 4

Of=ps+4

With tax

$20-pd=\frac{ps}{3}\\20-ps-4=\frac{ps}{3}\\ps=\frac{16×3}{4}=122\\ps=16$

$Q=4$

Dead weight loss$=\frac{1}{2}×(5-4)(16-12) \\$

$=2$