Using the following diagram, use the wedge shortcut to answer these questions:
a. If a tax of $2 were imposed, what price would buyers pay and what price would suppliers receive? How much revenue would be raised by the tax? How much deadweight loss would be created by the tax?
b. If a subsidy of $5 were imposed, what price would buyers pay and what price would suppliers receive? How much would the subsidy cost the government? How much deadweight loss would be created by the subsidy?

Transcribed Image Text:

Price $11 10 Supply 12 3 45 6 7 89 10 Quantity