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 by Q=300-2p. The supply of parties is given by Q=p.

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.

Calculate

a.The deadweight loss of the tax:

b.The consumer surplus post-tax

c.Producer surplus post-tax

d.Tax revenue

What happens to total surplus?

a.Total surplus decreases

b.Total surplus stays the same

c.Total surplus increases

f.What happens to consumer surplus?

a.Consumer surplus stays the same

b.Consumer surplus increases

c.Consumer surplus decreases

What happens to producer surplus?

a.Producer surplus decreases

b.Producer surplus increases

c.Producer surplus stays the same