Suppose Hillary Values a Large Order of French Fries at $4

question 556

Multiple Choice

Suppose Hillary values a large order of French fries at $4. Bill values a large order of French fries at $7. The pre-tax price of a large order of French fries is $2. The government imposes a "fat tax" of $3 on each large order of French fries, and the price rises to $5. The deadweight loss from the tax is

• A)$4, and the deadweight loss comes from both Hillary and Bill.
• B)$4, and the deadweight loss comes only from Hillary because she does not buy a large French fries after the tax.
• C)$2, and the deadweight loss comes from both Hillary and Bill.
• D)$2, and the deadweight loss comes only from Hillary because she does not buy a large French fries after the tax.

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