Figure 18-2 Shows a Demand Curve and Two Sets of Supply

question 148

Multiple Choice

Figure 18-2 shows a demand curve and two sets of supply curves,one set more elastic than the other.
-Refer to Figure 18-2.If the government imposes an excise tax of $1.00 on every unit sold,what is the size of the deadweight loss,if there is any?

• A)the area adc if the supply curve is S0 and the area bec if the supply curve is S1.
• B)the area afcd if the supply curve is S0 and the area bfce if the supply curve is S1.
• C)the area becf under either supply curve.
• D)There is no deadweight loss;revenue raised is used to fund government projects.

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Definitions:

Variable Costing

A pricing approach that incorporates solely the variable costs of production—such as direct materials, direct labor, and variable manufacturing overhead—into the cost per unit of products.

Variable Production Costs

Costs that vary directly with the level of production, such as raw materials and direct labor.

Product Costs

All costs that are involved in acquiring or making a product. In the case of manufactured goods, these costs consist of direct materials, direct labor, and manufacturing overhead. Also see Inventoriable costs.

Absorption Costing

A costing method that includes all manufacturing costs—direct materials, direct labor, and both variable and fixed manufacturing overhead—in unit product costs.