The market for pizza is characterized by a downward-sloping demand curve and an upward-sloping supply curve?
demand curve and an upward-sloping supply
curve.
a. Draw the competitive market equilibrium. Label
the price, quantity, consumer surplus, and
producer surplus. Is there any deadweight loss?
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?
Answer:
Try going to your lectures and reading through your text book for a change. Don't expect people to do your work on here - those who are dumb enough to try will probably get it wrong for you...
no i will not help you with your homework.
a1 find a piece of paper and a pencil
a2 put a small dot in bottom left corner
a3 Draw a horizontal line from that dot to the right side of the sheet. Put a small arrowhead and the end. Write Q near arrowhead, that's quantity axis.
a4 Draw a horizontal line from that dot to the top side of the sheet. Put a small arrowhead and the end. Write P near arrowhead, that's price axis.
a5 Draw a straight line from top left corner to bottom right. Label is as D (demand)
a6 Draw a straight line from bottom left corner to top right. Label is as S (demand)
a7 Draw a horizontal line from intersection of D & S to P axis.
The point on P axis is P* - equilibrium price.
Triangle above the line is CS - consumer surplus
Triangle below the line is PS - producer surplus
a8 Draw a vertical line from intersection of D & S down to Q axis. The point on Q axis is Q* - equilibrium quantity.
a9 write "There is no deadweight loss b/c quantity makes marginal benefit (demand) equal to marginal cost (supply)"
b1. Repeat a1-a6
b2 draw a vertical line through entire thing a bit to the left of intersection of S &D
Label it's intersection with Q axis as Q'
b3 Draw two parallel horizontal lines from intersection of vertical line from b2 with S and D lines to P axis.
Label the distance between the two lines as $1.
Label intersection of top line with P axis as P'
b4 Label triangle below bottom line as PS,
triangle above top line as CS
rectangle between the lines as government revenue (R)
and small triangle between vertical line, D and S - as deadweightloss (DWL)
b5 Write "Sum of CS, PS, DWl and R" is equal to sum of CS and PS before the tax. CS and PS both decrease as the result of the tax"
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