Question

Suppose Luke values a scoop of Italian gelato at $4. Leia values a scoop of Italian gelato at $6. The pre-tax price of a scoop of Italian gelato is $2. The government imposes a "fat tax" of $3 on each scoop of Italian gelato, and the price rises to $5. The deadweight loss from the tax is

a. $4, and the deadweight loss comes only from Luke because he does not buy gelato after the tax.

b. $2, and the deadweight loss comes from both Luke and Leia.

c. $4, and the deadweight loss comes from both Luke and Leia.

d. $2, and the deadweight loss comes only from Luke because he does not buy gelato after the tax.

Answer 1

Correct option is D.

Step-by-step explanation:

$2, and the dead weight loss comes only from Luke because he does not buy gelato after the tax.