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18. Gruber 20.1

The market demand for super-sticky glue is *Q *= 240 – 6*P *and the
Market supply is *Q *= –60 + 4*P*.

a. Calculate the deadweight loss of a **tax** of $4 per
Unit levied on producers of supersticky

glue.

*Per unit
Tax* - a tax that is defined as a fixed amount for each unit of
A good or service sold, such as cents per kilogram. It is thus proportional to
The particular quantity of a product sold, regardless of its price.

*Tax wedge* - difference between before-tax and after-tax
Wages. The **tax wedge** measures how much the government receives as a result of
Taxing the labor force; A measure of the market inefficiency that is created
When a tax is imposed on a product or service

Deadweight loss is Calculated as the area of a triangle, the height of which is the dollar amount Of the tax and the base of which is the change in quantity purchased resulting From the tax.

Without the tax, **equilibrium** is
240 – 6*P *= –60 + 4*P*, or 300 = 10*P*.

Equilibrium price is $30, So equilibrium quantity is

–60 + (4 × 30) = 120 – 60 = 60.

A tax levied on producers
Changes the supply function to *Q *= –60 + 4(*P *– 4) because the
Price the producers can keep from any sale is reduced by $4.

Recalculating
Equilibrium, 240 – 6*P *= –60 + 4*P *– 16, or 316 = 10*P*.

Equilibrium price is $31.60, so equilibrium quantity is 240 – 6(31.60) = 50.4.

The change in quantity is 60 – 50.4 = 9.6, so the area of the deadweight triangle is:

½(9.6)(4) = 19.2