It is given that Qd = 300 - P, Qs = Q/2. Government imposes specific tax in such a way that it maximizes the total tax revenue. Then find out the DWL in such a situation.
We know that when tax is imposed, Pd = Ps + t Pd – Ps = t 300 – Q = 2Q + t Q* = 100 – t/3 Tax Revenue = t.Q = 100t – t2 / 3 For maximizing tax revenue, 100 – 2t/3 = 0 So, t = 150 Q* = 100 – 50 = 50 Once you get that quantity, you can get DWL (area of triangle) But for that you also need to know the optimal quantity without tax. Equating demand and supply functions, 300 – P = P/2 P = 200 Which implies, Q = 100 DWL = ½ * 150* (100-50) = 3750
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