Question

Assume that a $0.25/gallon tax on milk causes a loss of $250 million in consumer and producer surplus and creates a deadweight loss of $45 million. From this information, we know that the tax revenue from the tax is ___________.

Answer 1

Answer:

Tax revenue  = $205 million

Explanation:

given data

tax on milk = $0.25/gallon

loss = $250 million

dead weight loss = $45 million

to find out

tax revenue from the tax

solution

we know that Dead weight loss from tax is express as here

Dead weight loss from tax = Decrease in consumer surplus + decrease in producer surplus - Tax revenue     ...........................1

put here value we get

$45  = $250 - Tax revenue

Tax revenue  = $250 million - $45 million

Tax revenue  = $205 million