Answer: Dead weight loss=[tex]\frac{1}{2}\times(5)\times(50)[/tex]=$ 125.
Explanation:
Dead weight loss from the tax= [tex]\frac{1}{2}\times(P_{2} - P_{1})\times(Q_{0} - Q_{1})[/tex]
where
[tex](P_{2} - P_{1})[/tex]= Amount of tax imposed per unit.
[tex]Q_{0}[/tex] = Quantity demanded before tax
[tex]Q_{0}[/tex] = Quantity demanded after tax
∵ [tex](P_{2} - P_{1})[/tex] =$5
[tex]Q_{0}[/tex] = $ 200.
[tex]Q_{1}[/tex] is computed as: [tex]\frac{total tax raised}{tax per unit}[/tex]
=[tex]\frac{750}{5}[/tex]
=$150.
∴ Dead weight loss=[tex]\frac{1}{2}\times(5)\times(50)[/tex]=$ 125.
