12 May WHAT AREA REPRESENTS THE DEAD WEIGHT LOSS OF THE PRICE FLOOR?
Homework 1.5(13 points)1. (5 points) Suppose the state government imposes a new 20 cent tax per 12 ounce can of sodaor equivalent sold in retail outlets.a.What impact would this have on consumer surplus from soda consumption?b.What impact would this have on producer surplus from soda sales?c.What impact would this have on state tax revenue, assuming no tax is currentlyimposed on soda sales?d.Compare the revenue collected by the government to the loss of producer and consumersurplus (the sum of the two). Which is greater?e.Who would bear more of the burden of the soda tax if the demand for sodas is elastic,consumers or producers? Explain.2.(8 points) Consider a binding price floor for labor as shown below.a.Label the quantity exchanged under the price floor as QF.b.What happens to consumer surplus under a price floor? That is, does it increase,decrease, or is the impact ambiguous? Label the area of the graph that represents thischange in consumer surplus.c.What happens to producer surplus under a price floor? That is, does it increase,decrease, or is the impact ambiguous? Label the area of the graph that represents thischange in producer surplus.d.What area of surplus is transferred between producers and consumers and who gains it(producers or consumers)?e.What area represents the dead weight loss of the price floor?
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