Question: Suppose that Maria is willing to pay $40 for a haircut, and her stylist Juan is willing to accept as little as $25 for a haircut.
a. What possible prices for the haircut would be beneficial to both Maria and Juan? How much total surplus (that is, the sum of consumer and producer surplus) would be generated by this haircut?
b. If the state where Maria and Juan live instituted a tax on services that included a $5 per haircut tax on stylists and barbers, what happens to the range of haircut prices that benefit both Maria and Juan? Will the haircut still happen? Will this tax alter the total economic benefit of this haircut?
c. What if instead the tax was $20?