Scenario 12-3 Suppose Roger and Regina Receive Great Satisfaction from Their Consumption

question 156

Multiple Choice

Scenario 12-3
Suppose Roger and Regina receive great satisfaction from their consumption of cheesecake. Regina would be willing to purchase only one slice and would pay up to $8 for it. Roger would be willing to pay $11 for his first slice, $9 for his second slice, and $5 for his third slice. The current market price is $5 per slice.
-Refer to Scenario 12-3. Assume that the government places a $2 tax on each slice of cheesecake and that the new equilibrium price is $7. What is the deadweight loss of the tax?

• A)zero
• B)$3
• C)$6
• D)$8

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Definitions:

Business-Stealing Externality

Negative impacts on existing firms due to entry of new competitors, which can steal customers and reduce profits.

New Firms

Companies that have recently entered the market, bringing innovation, competition, and potentially disrupting established market dynamics.

Existing Firms

Companies or businesses that are currently operational and active within a market or industry.

Advertising

A form of marketing communication used to promote or sell something, usually a business's product or service.