Scenario 12-2 Suppose Roger and Regina Receive Great Satisfaction from Their Consumption

question 222

Multiple Choice

Scenario 12-2
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 12-2.Assume that the government places a $4 tax on each slice of cheesecake and that the new equilibrium price is $9.Which of the following statements is correct?

• A) Roger will bear the full burden of the deadweight loss.
• B) Regina will bear the full burden of the deadweight loss.
• C) Both Regina and Roger will share the burden of the deadweight loss.
• D) There will be no deadweight loss.

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Definitions:

Total Revenue

The sum of money a company earns from selling its products or services, prior to deducting any costs.

Elastic

Describes a situation in which the quantity demanded or supplied of a good or service changes significantly as its price changes.

Inelastic

A characteristic of goods whereby a change in price leads to a relatively smaller change in the quantity demanded or supplied.

Total-revenue Test

A method used to determine the price elasticity of demand by observing changes in total revenue as a result of price alterations.