Question:
Which areas of the diagram show the revenue collected by the government and the deadweight loss due to tax?
(1) Tax Rev: PNFT; DWL: FTE
(2) Tax Rev: ONFQ1; DWL: KTE
(3) Tax Rev: JPTK; DWL: KFE
(4) Tax Rev: JNFK; DWL: KFE
(5) Tax Rev: JNFK; DWL: KTE
Correct Answer:
(4)
Answer Explanation:
Tax revenue is calculated as the per-unit tax amount multiplied by the new equilibrium quantity (forming a rectangle). Deadweight loss is the lost societal welfare from units no longer traded due to the tax, represented by the triangle pointing toward the original equilibrium. In standard models matching these options, JNFK forms the revenue rectangle and KFE forms the DWL triangle.
Topic: Taxation Year: 2021
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