Suppost instead of a tax, the city requires all parties to obtain a license and only 50 licenses will be made available for October 31. Assume they can perfectly enforce this policy, and there is no way for a party to happen without a license. What is the new price and quantity.

Let Q(L) be the quantity after licenses are required and p(L) be the price after the licenses are required.

Find P(L) and Q (L)

Calculate the following (Assume that the licenses go to the 50 party hosts with the marginal willingness to supply at the lowest prices).

Find the (a) Deadweight loss of the policy

(b) Consumer Surplus

(c ) Producer Surplus

What happens to total surplus (relative to no-policy, no-tax)

(a)Total surplus increases

(b)Total surplus stays the same

(c)Total surplus increases

What happens to consumer surplus

(a)Consumer surplus stays the same

(b)Consumer surplus increases

(c)Consumer surplus decreases

What happens to producers surplus

a.Producer surplus decreases

b.Producer surplus increases

c.Producer surplus stays the same

How would the welfare impact differ if the licenses were allocated randomly among all potential party hosts rather than giving the licenses to those willing to supply at the lowest prices ? (Assume the licenses cannot be resold)

a.Total surplus would decrease

b.Total surplus would stay the same

c.Total surplus would increase

Which policy would potential party goers prefer?

a.Some potential party goers would prefer the tax policy

b.Some potential party goers would prefer the license policy

c.Some potential party goers would be indifferent between the tax and license policies

Which policy would potential hosts prefer?

a.Some potential hosts would prefer the tax policy

b.Some potential hosts would prefer the license policy

c.Some potential hosts would be indifferent between the tax and license policies

Which policy does the city government prefer?

a.The city would prefer the tax policy

b.The city would prefer the license policy

c.The city would be indifferent between the tax and license policies

d.The city would prefer neither policy to either policy