Leonard, Sheldon, Raj, and Penny Each Like Science Fiction Moves

question 452

Multiple Choice

Leonard, Sheldon, Raj, and Penny each like science fiction moves. The price of a special boxed set of Star Trek DVDs is $50. Leonard values the set of movies at $70, Sheldon at $65, Raj at $60, and Penny at $55. Suppose that if the government taxes DVDs at $10 each, the price rises to $60. A consequence of the tax is that consumer surplus shrinks by

• A)$50 and tax revenues increase by $30, so there is a deadweight loss of $20.
• B)$35 and tax revenues increase by $30, so there is a deadweight loss of $5.
• C)$20 and tax revenues increase by $20, so there is no deadweight loss.
• D)$15 and tax revenues increase by $20, so there is no deadweight loss.

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