The market for pizza is characterized by adownward-sloping demand curve and an upwardsloping supply curve.a. Draw the competitive market equilibrium.Label the price, quantity, consumer surplus, andproducer surplus. Is there any deadweight loss?Explain.b. Suppose that the government forces eachpizzeria to pay a $1 tax on each pizza sold.Illustrate the effect of this tax on the pizzamarket, being sure to label the consumer surplus,producer surplus, government revenue, anddeadweight loss. How does each area compare tothe pre-tax case?c. If the tax were removed, pizza eaters and sellerswould be better off, but the government wouldlose tax revenue. Suppose that consumers andproducers voluntarily transferred some of theirgains to the government. Could all parties(including the government) be better off than theywere with a tax? Explain using the labeled areas inyour graph
The market for pizza is characterized by a
downward-sloping
a. Draw the competitive market equilibrium.
Label the
Explain.
b. Suppose that the government forces each
pizzeria to pay a $1 tax on each pizza sold.
Illustrate the effect of this tax on the pizza
market, being sure to label the consumer surplus,
producer surplus, government revenue, and
deadweight loss. How does each area compare to
the pre-tax case?
c. If the tax were removed, pizza eaters and sellers
would be better off, but the government would
lose tax revenue. Suppose that consumers and
producers voluntarily transferred some of their
gains to the government. Could all parties
(including the government) be better off than they
were with a tax? Explain using the labeled areas in
your graph
Trending now
This is a popular solution!
Step by step
Solved in 4 steps with 3 images
