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.
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