Question

c) Suppose that the demand and supply for pizza on a college campus is given by Demand: Qd 20,000 1,000P Supply: Qs 2,000P - 10,000 Where Qd is demand, Qs is supply and P is the price per pizza in dollars. Please put your numerical answers to each part of this question in the table below. Write your explanation in your exam book. I book. a) Solve for the equilibrium price and quantity, consumer and producer surplus, and DWL. Explain why deadweight loss is zero in this case. Which "side of the market" places a relatively high value on pizza? What is the elasticity of demand at equilibrium? Elasticity of supply? b) Suppose that students complain that pizza is too costly and the city council decides to limit the price of pizza to $8 to help make pizza more affordable Q Why doesn't the pizza market clear? Do all pizza consumers benefit from this policy? Why aren't all college students who buy pizza better off with the price limit, i.e., why would some students prefer that there be no price limits on pizza? c) Suppose the city council thinks students are eating too much pizza and decides to limit the number of pizzas sold to 6,000 per month. How does the distributional impact of this policy differ from the policy in b)? Would pizza makers support this policy? Why or why not? e) Suppose the government needs to raise revenue to repave the road and also believes that pizzerias are making too much money so decides to levy a $6 tax on each pizza sold How much revenue does the city raise from the pizza tax? What is the incidence of the pizza tax? What share of the tax do consumers bear? What share do pizza sellers bear? Is this outcome fair? Explain your answer. Complete the table below: Quantity o 000 6000 | 6000 Consumer price Producer price | fo Consumer Surplus Producer Surplus Tax revenue 36 6oo 63,000 Total surplus plus revenue Deadweight Loss (DWL) 00o Analysis (be brief!): Suppose you wanted to limit the number of pizzas sold to 6,000 a month. Which policy would you choose? Why? Calculate the ratio of DWL to tax revenue. Interpret your result. 6

Answer 1

Please find the answer below:

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