Question: The market demand for stuffed rabbits is Q 2 600

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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  • CreatedApril 25, 2015
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