The market demand for stuffed rabbits is Q = 2,600 20P, and the government intends to

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The market demand for stuffed rabbits is Q = 2,600 – 20P, and the government intends to place a $4 per bunny tax on stuffed rabbit purchases. Calculate the deadweight loss of this tax when:

a. Supply of stuffed rabbits is Q = 400.

b. Supply of stuffed rabbits is Q = 12P. In this case, supply is not completely inelastic, so before-tax and after-tax quantities must be calculated.

c. Explain why the deadweight loss calculations differ between 10a and 10b.

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Public Finance and Public Policy

ISBN: 978-1429278454

4th edition

Authors: Jonathan Gruber

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Question Posted: Apr 25, 2015 07:44 AM

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The market demand for stuffed rabbits is Q = 2,600 20P, and the government intends to

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a The quantity before the tax is 400 the quantity after the tax is 400 When ...View the full answer

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