In an effort to reduce alcohol consumption, the government is considering a tax $1 for every gallon of liquor sold (tax imposed on manufacturers). Suppose the demand curve is Q D = 500,000 - 20,000 P (where Q D is the number of gallons of drink liquor demanded and P is the price per gallon), and the liquor supply curve is Q S = 30,000 P (where Q S is the number of gallons supplied). a. Calculate how the tax affects the price paid by consumers and the price paid accepted by the manufacturer. b. What is the tax revenue for the government? How much income come from consumers, and how much from producers? c. Suppose the demand for liquor is more elastic for younger drinkers than older drinker. Will the liquor tax be more, less, or the same effective in reducing alcohol consumption among young drinkers? Explain.

In an effort to reduce alcohol consumption, the government is considering a tax $1 for every gallon of liquor sold (tax imposed on manufacturers). Suppose the demand curve is Q D = 500,000 - 20,000 P (where Q D is the number of gallons of drink liquor demanded and P is the price per gallon), and the liquor supply curve is Q S = 30,000 P (where Q S is the number of gallons supplied). a. Calculate how the tax affects the price paid by consumers and the price paid accepted by the manufacturer. b. What is the tax revenue for the government? How much income come from consumers, and how much from producers? c. Suppose the demand for liquor is more elastic for younger drinkers than older drinker. Will the liquor tax be more, less, or the same effective in reducing alcohol consumption among young drinkers? Explain.

Microeconomics: Principles & Policy

14th Edition

ISBN:9781337794992

Author:William J. Baumol, Alan S. Blinder, John L. Solow

Publisher:William J. Baumol, Alan S. Blinder, John L. Solow

Chapter16: Externalities, The Environment, And Natural Resources

Section: Chapter Questions

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