assume that the price of a pizza at your local pizza parlour is $12. Illustrate what happens to producer surplus if the price falls from $12 to $6.
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It represents the benefit to producers from selling at a market price higher than their minimum acceptable price. Show more…
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Consider the market for pizza. Suppose the market demand and supply curves are given as below: Demand: Qd = 150 - 10P, Supply: Qs = 5P. a) Plot the demand and supply curves on a diagram. Specify all the intercepts. Calculate the equilibrium price and quantity. b) Now suppose the government taxes consumers $3 per pizza. Show how this tax affects the market equilibrium. What is the new quantity traded? What is the new price paid by consumers and what is the new price received by producers? Show them in your diagram. c) Calculate the tax revenue made by the government. What share is paid by producers? What share is paid by consumers? d) Calculate the change in consumer surplus and change in producer surplus caused by the tax. Specify the deadweight loss associated with the tax in the diagram and calculate its size.
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