JNU SSS 2019 - Question 27 (Solution)

In the market for widgets, the supply curve is the typical upward-sloping straight line, and the demand curve is typical downward-sloping straight line. The equilibrium quantity in the market for widgets is $200$ per month when there is no tax. Then a tax $\$5$ per widget is imposed. The price paid by buyers increases by $\$2$ and the after-tax price received by sellers falls by $\$3$. The government can raise $\$750$ per month in the tax. The dead weight loss from the tax is:
Given,
Equilibrium quantity $=\$200$ per month
Tax amount $=\$5$
Tax revenue $=\$750$
Let, the new equilibrium quantity (after tax) be $y$,
$$\implies $5 \times y=\$750 \\ \therefore y=\frac{750}{5}=150$$

Dead-Weight Loss

Dead-Weight Loss (DWL) is give by, 
$$DWL= \ Area \ of  \ triangle \ ABC \\ =\frac{1}{2} \times Base \times Height \\ =\frac{1}{2} \times (200-150) \times (5) \\ =125$$


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