Question

Homework: HW5: Economic Effects of Taxes Score: 0 of 1 pt 5 of 20 (4 complete) HW Score End of Chapter 4.5 EQ Suppose the current equilibrium price of cheese pizzas is $11.00, and 11 million pizzas are sold per month. After the federal government imposes a $3.00 per pizza tax, the equilibrium price of pizzas rises to $13.00, and the equilibrium quantity falls to 9 million. This situation is illustrated in the graph. Compare the economic surplus in this market when there is no tax to when there is a tax on pizza, 1.) Use the triangle drawing tool to shade in the change in economic surplus as a result of the tax. Properly label this shaded area indicating whether surplus has increased (new economic surplus) or decreased (deadweight loss). 2.) Use the rectangle drawing tool to shade in new government revenue as a result of the tax. Properly label this shaded area. Carefully follow the instructions above, and only draw the required objects. Price (dollars per pizza) 0. 001 1 0 12 14 16 18 20 Quantity (millions of pizzas per month)

Answer 1

Price ($/Pi22a) S2 Giovt. Tax 13 Pay 9fter te 1 1 Comsumers hevemue DNL Dead weght Loss 10 Selters h heceive nfter Guantity milioms af pi2zan 9 11 Per momty Betere tax, camsumens 5urtus(area belo alemand CUMve and aloove the phice consumers P Catbtctd) producers te Surtus (area Sellers neceive and above Sutply curve-(++eth) below the poice Totel Surpus = 9+6+0+ d+ te +h

Afte tonx Camsuneies sumplus G1ONtpevenue (6+st9f) Totnl Surplus athtbtc +9+ To to Surplus = Because ta, Change im athtb+c++)-(atb+ C+d+ 9+f+e t) je. Totol Surpus decreases by the curen Cate) Deadweignt Los s (dte)