Okay, the market for piza is characterized by a normal downward sloping demand curve and an upward sloping supply curve.
a. Suppose the government forces each pizzaria to pay a $1 tax on each pizza sold. What happens to CS, PS, tax revenue & DWL in comparison to the same areas before the tax was imposed?
b. If the tax were removed, pizza eaters and sellers would be better off, but the government would lose tax revenue. Suppose that consumers and producers voluntarily transferred some of their gains to the government. could all parties (including the government) be better off than they were with a tax?
1 comment:
Excellent points, Reid.
There is no way to meet what the government would impose. So...consumers, producers & the gov are all worse off - consumers and producers lose more money (even voluntarily), so they aren't happy with the higher price to be paid, and the government wouldn't get enough revenue, so they wouldn't be happy.
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