1. The City of Cambridge is concerned about the number of wild MIT students who will be partying on Halloween and wants to limit the number of parties in order to curb the costs of policing underage drinking and noise violations. The city has asked you to evaluate the welfare implications of policies they are considering. Think of price here as the amount of money party hosts will collect at the door from party-goers. The demand for parties is given byQ=3002p. The supply of parties is given byQ=p Find the equilibrium price and quantity in the market for Halloween parties. (P=100, Q=100 i already did...)
2. Now suppose that the city has found a fail-safe way to tax parties by requiring each party host to pay a fee of $60. Find the new price for party-goers, the after tax price received by the party hosts, and the new equilibrium quantity. Letps be the price the suppliers receive (after the tax),pcbe the price the consumers pay for each party, andQtbe the after tax quantity.

• Ps= ?
• Pc= ?
• Qt= ?

3.For the tax in PS question 2, calculate the following.

• The deadweight loss of the tax:

(Please enter a positive figure. Tax revenue is a transfer to the government, and is not part of DWL.)

• The consumer surplus post-tax:
• Producer surplus post-tax:
• Tax revenue:

4.Suppose 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? LetQL be the quantity after licenses are required andpLbe the price after licenses are required.

• PL= ?
• QL = ?

5.For the quantity restriction in PS question4, calculate the following. (Assume that the licenses go to the 50 party hosts with the marginal

willingness to supply at the lowest prices.)

• The deadweight loss of the policy:
• The consumer surplus:
• Producer surplus: