The state needs to raise money, and the governor has a choice of imposing an excise tax of the same amount on one of two previously untaxed goods: the state can tax either sales of restaurant meals or...

The state needs to raise money, and the governor has a choice

of imposing an excise tax of the same amount on one of two

previously untaxed goods: the state can tax either sales of

restaurant meals or sales of gasoline. Both the demand for

and the supply of restaurant meals are more elastic than the

demand for and the supply of gasoline. If the governor wants

to minimize the deadweight loss caused by the tax, which

good should be taxed? For each good, draw a diagram that

illustrates the deadweight loss from taxation.