12. In an effort to reduce alcohol consumption, the government is considering a 51 tax on each gallon of liquor sold (the tax is levied on producers). Suppose hat the supply curve for liquor is upward sloping and its equation is Q = 30,000P (where Q is the number of gallons of liquor and P is the price per gallon). The demand curve for liquor is Q = 500,000 - 20,000P. a. Draw a sketch to illustrate the excess burden of the tax. Next use algebra to calculate the excess burden. Show graphically the excess burden generated by the $1 unit tax. (Hint: Compare the losses of both consumer and producer surplus to tax revenues.) b. Suppose that each gallon of liquor consumed generates a negative external cost of $0.50. How does this affect the excess burden associated with the unit tax on liquor?
12. In an effort to reduce alcohol consumption, the government is considering a 51 tax on each gallon of liquor sold (the tax is levied on producers). Suppose hat the supply curve for liquor is upward sloping and its equation is Q = 30,000P (where Q is the number of gallons of liquor and P is the price per gallon). The demand curve for liquor is Q = 500,000 - 20,000P. a. Draw a sketch to illustrate the excess burden of the tax. Next use algebra to calculate the excess burden. Show graphically the excess burden generated by the $1 unit tax. (Hint: Compare the losses of both consumer and producer surplus to tax revenues.) b. Suppose that each gallon of liquor consumed generates a negative external cost of $0.50. How does this affect the excess burden associated with the unit tax on liquor?
Essentials of Economics (MindTap Course List)
8th Edition
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter6: Supply, Demand And Government Policies
Section: Chapter Questions
Problem 7PA
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Transcribed Image Text:12. In an effort to reduce alcohol consumption, the government is considering a
$1 tax on each gallon of liquor sold (the tax is levied on producers). Suppose
that the supply curve for liquor is upward sloping and its equation is Q =
30,000P (where Q is the number of gallons of liquor and P is the price per
gallon). The demand curve for liquor is Q = 500,000 – 20,000P.
a. Draw a sketch to illustrate the excess burden of the tax. Next use
algebra to calculate the excess burden. Show graphically the excess
burden generated by the $1 unit tax. (Hint: Compare the losses of both
consumer and producer surplus to tax revenues.)
b. Suppose that each gallon of liquor consumed generates a negative
external cost of $0.50. How does this affect the excess burden
associated with the unit tax on liquor?
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