The City of Cambridge is concerned about the number ofwild 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- Find the equilibrium price and quantity in the market for Halloween parties. 3* P = 100 v 100 Q" = 100 v 1nn 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. Let p3 be the price the suppliers receive (after the tax), pc be the price the consumers pay for each party, and Qt be the after tax quantity. For the tax in P56.2.2, 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.) 1200 V 1200 The consumer surplus post-tax: V 900 Producer surplus post-tax: 1800 V 1800 Tax revenue: 3600 V 3600 Show the welfare impact of this policy in a graph. In your graph, label regions corresponding to (total) producer surplus post- tax, (total) consumer surplus post-tax, tax revenue, and deadweight loss post-tax. (Your graph is not graded, but you can check your answer. It is for your own understanding.) What happens to total surplus? Total surplus decreases Q Total surplus stays the same 0 Total surplus increases V What happens to consumer surplus? 0 Consumer surplus stays the same O Consumer surplus increases Consumer surplus decreases | What happens to producer surplus? Producer surplus decreases 0 Producer surplus increases Suppose instead ofa 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 QL be the quantity after licenses are required and pL be the price after licenses are required. 11L: 125 V 125 For the quantity restriction in PS6.2.4, 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 ofthe policy: (Please enter a positive figure.) 1875 V 1875 The consumer surplus: 4375 X 4375 Producer surplus: 1250 1250 X Show the welfare impact of this policy in a graph. In your graph, label regions corresponding to (total) producer surplus, (total) consumer surplus, and deadweight loss. (Your graph is not graded, but you can check your answer. It is for your own understanding.) What happens to total surplus (relative to no-policy, no-tax)? Q Total surplus decreases a Total surplus stavs the same Show the welfare impact of this policy in a graph. In your graph, label regions corresponding to (total) producer surplus, (total) consumer surplus, and deadweight loss. (Your graph is not graded, but you can check your answer. It is for your own understanding.) What happens to total surplus (relative to no-policy, no-tax)? 0 Total surplus decreases Q Total surplus stays the same Q) Total surplus increases | What happens to consumer surplus? 0 Consumer surplus stays the same Consumer surplus increases 0 Consumer surplus decreases x What happens to producer surplus? 0 Producer surplus decreases Producer surplus increases |