Question

In: Economics

Suppose that demand for pizza at chuck cheese can be expressed by the (normal) demand function:...

Suppose that demand for pizza at chuck cheese can be expressed by the (normal) demand function: Q = 10 - P. Further suppose that the (normal) supply function can be expressed: Q = 2P - 2.

Graph this situation.

1.What is the initial equilibrium price?

2.What is the initial equilibrium quantity?

3.Suppose that a tax of $3/pizza is levied on chuckie cheese (the producer).What will be the new price paid by consumers after the tax?

4. What will be the new price received by chuck cheese (producer) after the tax?

5. What will be the tax revenue collected from this tax?

6. What is the deadweight loss associated with this tax?

7. By how much was consumer surplus reduced because of the tax?

8. By how much was producer surplus reduced by this tax?

Solutions

Expert Solution

Rahul Sunny answered 2 years ago
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