Suppose Luke Values a Scoop of Italian Gelato at $4

question 42

Multiple Choice

Suppose Luke values a scoop of Italian gelato at $4. Leia values a scoop of Italian gelato at $6. The pre-tax price of a scoop of Italian gelato is $2. The government imposes a "fat tax" of $3 on each scoop of Italian gelato, and the price rises to $5. The deadweight loss from the tax is

• A)$1.
• B)$2.
• C)$3.
• D)$4.

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Definitions:

Stock Value

The price of a single share of a company's stock, representing ownership in the company and its potential profitability.

Interest Rate

The proportion of a loan that is charged as interest to the borrower, typically expressed as an annual percentage of the loan remaining.

Nearest 0.01%

Rounded to the closest one-hundredth of a percent.

Interest Rate

A percentage that represents the cost of borrowing money or the profit earned from an investment.