i) For special occasions, some people purchase and set off fireworks in their backyards. Assume the market for fireworks is perfectly competitive.

i.Draw a correctly labeled graph of the market for fireworks and show the market equilibrium price and quantity, labeled PE and QE. (3 points)

ii.Assume the noise from the fireworks disturbs all of the neighbors. On your graph in i), show each of the following:

-The marginal social cost curve, labeled MSC. (1 point)

-The marginal social benefit curve, labeled MSB. (1 point)

-The deadweight loss, if any, shaded completely. (3 points)

iii.Now instead assume that all of the neighbors enjoy watching the fireworks.

-In this case, is the market equilibrium quantity of fireworks greater than, less than, or equal to the socially optimal quantity? Explain. (3 points)

-In this case, if the government bans fireworks, will the deadweight loss increase, decrease or remain unchanged? (3 points)

k) A local pizza parlor offers an all-you-can eat lunch for $10. You pay at the door, and then the waiter brings you as many slices of pizza as you like. A colleague at USC performed the following experiment: He had an assistant serve as the waiter for one group of tables. The "waiter" selected half of the tables at random and gave everyone at those tables a $10 refund before taking orders. The remaining half got no refund. He then kept careful count of the number of slices each diner ate. What difference, if any, do you predict in the amount of pizza eaten by the two groups? Explain your reasoning.

i.Assume that gasoline is sold in a competitive market in which demand is relatively inelastic, and supply is relatively elastic.

ii.Draw a correctly labeled graph of the gasoline market. On your graph, show the equilibrium price and quantity of gasoline, labeled PE and QE. (3 points)

iii.Suppose the government imposes a $2 per-unit tax on the producers of gasoline. On your graph from part (a), show each of the following after the tax is imposed.

a.The price paid by buyers, labeled PB. (1 point)

b.The after-tax price received by sellers labeled PS. (1 point)

c.The quantity, labeled QT. (2 points).

iv.Using the labeling on your graph, explain how to calculate the total tax revenue collected by the government.

Will the tax burden fall entirely on buyers, entirely on sellers, more on buyers and less on sellers, more on sellers and less on buyers, or equally on buyers and sellers? Explain