Problem
1. Why do taxes create a deadweight loss the same way that regulations do? If a tax and a quota raise prices by the same amount, which causes more deadweight loss? Explain.
2. Consider the market for Cheese Puff Snacks (Q is in bags of Cheese Puffs). The demand for Cheese Puff Snacks is QD = 30 - P and the supply is QS = 3P - 10. To pay for classes about healthy snacking, the government imposes a $4 per bag tax on Cheese Puffs.
a. What are the price paid by buyers, price received by sellers, and the number of bags of Cheese Puffs sold both before and after the tax?
b. What are the deadweight loss and revenue generated from this tax?
c. If the government decides to expand the healthy snacking program and raises the tax by $8 per bag (to the $12 total), what is the additional DWL and revenue from increasing taxes by this amount (that is in addition to the DWL and revenue that resulted from the $4 tax)?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.