JNU SSS 2019 - Question 31 (Solution)

A tax of $ \$0.25$ is imposed on each bag of potato chips that is sold. The tax decreases producer surplus by $ \$600$ per day, generates tax revenue of $ \$1220$ per day, and decreases the equilibrium quantity of potato chips by $120$ bags per day. The tax:
Given,
Tax imposed on each bag of potato chips is $ \$0.25$
Difference in pre and post tax quantities of chips is $120$ bags.

Dead-Weight Loss (DWL)

Dead-weight Loss is given by the area of the triangle $ABC$, 
$$DWL=\frac{1}{2} \times Base \times Height \\ = \frac{1}{2} \times (120) \times (0.25) \\ = \$ 15$$

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