Compare your answers to Problem 1 and In-Text Exercise 15.1 (page 523) with the answer to Worked-Out Problem 15.1 (page 522). In each case, what is the ratio of the deadweight loss to tax revenue? What happens as the tax grows larger?
In Exercise 15.1
The market demand function for corn is Qd = 15 - 2P and the market supply function is Qs = 5P -2.5, both measured in billions of bushels per year. Suppose the government imposes a $2.10 tax per bushel. What will be the effects on aggregate surplus, consumer surplus, and producer surplus? What will be the deadweight loss created by the tax?