Leonard, Sheldon, Raj, and Penny Each Like to Attend Comic-Book

question 76

Multiple Choice

Leonard, Sheldon, Raj, and Penny each like to attend comic-book conventions. The price of a ticket to a convention is $50. Leonard values a ticket at $70, Sheldon at $65, Raj at $60, and Penny at $55. Suppose that if the government taxes tickets at $5 each, the price will rise to $55. A consequence of the tax is that consumer surplus shrinks by

• A)$50 and tax revenues increase by $20, so there is a deadweight loss of $30.
• B)$30 and tax revenues increase by $20, so there is a deadweight loss of $10.
• C)$20 and tax revenues increase by $20, so there is no deadweight loss.
• D)$50 and tax revenues increase by $20, so there is no deadweight loss.

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Definitions:

Fixed Cost

A cost that does not change with the level of output or sales, such as rent, salaries, and insurance.

Insurance Premiums

The amount of money that an individual or business must pay for an insurance policy.

Law of Diminishing Returns

The principle stating that as investment in a particular area increases, the rate of profit from that investment, after a certain point, cannot continue to increase if other variables remain constant.

Marginal Product

The additional output that can be produced by adding one more unit of a specific input, while holding all other inputs constant, crucial in understanding production efficiency.