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?