Assume the supply curve for diapers is typical

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Assume the supply curve for diapers is a typical, upward-sloping straight line, and the demand curve for diapers is a typical, downward-sloping straight line. Suppose the equilibrium quantity in the market for diapers is 1,000 per month when there is no tax. Then a tax of $0.50 per diaper is imposed. The effective price paid by buyers increases from $1.50 to $1.90 and the effective price received by sellers falls from $1.50 to $1.40. The government's tax revenue amounts to $475 per month. Which of the following statements is correct?

A. After the tax is imposed, the equilibrium quantity of diapers is 900 per month.

B. The tax causes a decrease in consumer surplus of $380.

C. The demand for diapers is more elastic than the supply of diapers.

D. The deadweight loss of the tax is $12.50.

Reference no: EM131090383

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