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What is the amount of deadweight loss created by this policy? Is this policy a good idea?

What is the amount of deadweight loss created by this policy? Is this policy a good idea?

Principles of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
8th Edition
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter8: Application: The Cost Of Taxation
Section: Chapter Questions
Problem 4CQQ
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Question

Assuming a supply function of

Qs = 100+100p

and a demand function of

Qd = 700-50p 

and an equilibrium price of $4 with an equilibrium quantity of 500million gallons 

please answer the last question regarding the deadweight loss.

 

 

What is the demand elasticity at the equilibrium of 2022? What is the supply elasticity? Which one is more elastic? High gas prices have imposed a great burden on consumers. Suppose that the government now wishes to protect consumers by taxing gasoline supply and considers to impose a $0.5 tax per gallon on gas suppliers. What is the equilibrium price and quantity after tax? Calculate the burden of this proposed tax; what percent of the tax would be "paid" by consumers (Round to nearest percent)? How is this related to your answer in part c)? What is the amount of deadweight loss created by this policy? Is this policy a good idea?
Transcribed Image Text:What is the demand elasticity at the equilibrium of 2022? What is the supply elasticity? Which one is more elastic? High gas prices have imposed a great burden on consumers. Suppose that the government now wishes to protect consumers by taxing gasoline supply and considers to impose a $0.5 tax per gallon on gas suppliers. What is the equilibrium price and quantity after tax? Calculate the burden of this proposed tax; what percent of the tax would be "paid" by consumers (Round to nearest percent)? How is this related to your answer in part c)? What is the amount of deadweight loss created by this policy? Is this policy a good idea?
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