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Microeconomics

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Market Interventions: Tacks Tax

AWAKE-YKSXBF

In the market for metal tacks, the demand and supply curves are:

$$P = 90 - 2Q_d$$
$$P = 10 + 2Q_s$$

Due to an unexpected increase in public expenditure, the government needs to collect some new tax revenue fast! So they decide to impose a per-unit tax on tacks (so, for every box of tacks sold, the government collects a fixed fee). However, there is a rule requiring that no government tax can impose a deadweight loss larger than 2.

What is the largest tax that the government can impose?

A

$\sqrt{8}$

B

4

C

8

D

20