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The local community is considering two options to raise money to finance a new football stadium....

The local community is considering two options to raise money to finance a new football stadium. The first option is to institute a per unit tax on restaurant meals of $2.00. The market demand and supply functions for restaurant meals are:

QD=80,000 -1000P

QS=19,000P - 220,000

Round to the nearest whole number; no decimals, commas, or dollar signs.

a) Calculate consumer  and producer surplus with the per unit tax.

The second option the community is considering implementing is an income tax. If an income tax is implemented, the new demand for restaurant meals is:

Q'D=79,000-1000P

b) Calculate the level of consumer  and producer surplus in the restaurant market with the income tax. Which of the two options will reduce the sum of consumer and producer surplus the least? (specificor income)   

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Expert Solution

Rahul Sunny answered 2 years ago
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