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3. (8 points) Suppose the demand is (2;; : 4 P: where quantity is measured in millions of gallons, and the supply is perfectly elastic

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3. (8 points) Suppose the demand is (2;; : 4 P: where quantity is measured in millions of gallons, and the supply is perfectly elastic (at) at a price of $2 per gallon {that is the, marginal cost is $2 per gallon). If the market is perfectly competitive: the equilibrium price is $2 and the equilibrium consumption is 2 million gallons. Suppose that the government decides to impose a tax of $1 per gallon on producers. (a) What is the price consumers pay after the tax is imposed, and how much does consumer surplus change? (b) What is the dead weight loss created by the tax

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