1. What is the deadweight loss? If the price elasticity of a good is large, would you expect the deadweight lost to be large or small.
2. What happen to the equilibrium price and quantity of a good when a tax is imposed non the good? Why does a tax create a wedge between the price the consumer pays and the price the producer receives?
3. How does tax a affect consumer and producer surplus? Why does a tax create a deadweight loss?
4. How does a subsidy affect consumer and producer surplus?

Problem

1. Increase in demand generally result in increase in consumer surplus. But that's not always true. Illustrate a situation in which an increase in demand actually results in a decrease in consumer surplus. What condition on the supply side of the market make this more likely to occur?
2. Low-skilled workers operate in a competitive market. The labor supply is Qs= 10W (where W is the price of labor measured by the hourly wage) and demand for labor is Qd= 240 - 20W. Q measured the quantity of labor hired (in thousands of hours)
3. You are USDA economist, and the senate Finance Committee has come to you for advice. The government is consider bolstering its finances by imposing a tax on either salt or blue cheese. You know that the market for salt and blue cheese are roughly the same size, though the demand for the blue cheese is highly elastic. Which option do you recommend as the least costly choice?