What is the numerical value of the deadweight loss

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Reference no: EM131162931

1. Assume the same initial demand and supply equations as we did in class for the gasoline market: Qd = 150 – 25P and Qs = 60 + 20P. Quantity is measured in billions of gallons.

a. What is the tax equilibrium if the per unit tax is $2 per unit?

b. What is the numerical value of the deadweight loss (DWL) resulting from this $2 tax? Illustrate the DWL, including the before and after tax equilibriums, in a graph.

c. Per our lecture discussion, the DWL that resulted from the $1 per unit tax is $5.5B. What happened to the DWL when the per unit tax doubled? Did the DWL double, less than double, or more than double?

Hint: question 1ab, you are asked to find the tax equilibrium and DWL for a $2 tax. For 1c, compare your answer in part b (DWL for a $2 tax) to the $5.5B we calculated in class (DWL for a $1 tax). Buyers pay the tax : P_buyers - P_sellers = $2.

Reference no: EM131162931

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