Response to the following problem:
Consider the original market for pizza in Collegetown, illustrated in the accompanying table. Collegetown officials decide to impose an excise tax on pizza of $4 per pizza.
|
Price of pizza
|
Quantity of pizza demanded
|
Quantity of pizza supplied
|
|
$10
|
0
|
6
|
|
$9
|
1
|
5
|
|
$8
|
2
|
4
|
|
$7
|
3
|
3
|
|
$6
|
4
|
2
|
|
$5
|
5
|
1
|
|
$4
|
6
|
0
|
|
$3
|
7
|
0
|
|
$2
|
8
|
0
|
|
$1
|
9
|
0
|
a. What is the quantity of pizza bought and sold after the imposition of the tax? What is the price paid by consumers? What is the price received by producers?
b. Calculate the consumer surplus and the producer surplus after the imposition of the tax. By how much has the imposition of the tax reduced consumer surplus? By how much has it reduced producer surplus?
c. How much tax revenue does Collegetown earn from this tax?
d. Calculate the deadweight loss from this tax.