Q2. Suppose the government wants to reduce the consumption of alcohol in the market by introducing a tax per bottle on the supplier's side. The government does not know what the demand curve looks but knows that prior to the tax, the equilibrium is at point E1, for all the consumers in the market. Suppose there are two scenarios of alcohol consumers in the market: i) an extremely inelastic demand curve for additive adult drinkers ii) a demand curve that is moderately elastic for young drinkers Please show your answer directly to a well labeled figure and explain what would occur under these two scenarios after adding the tax on the supplier's side, and on which scenario group this tax would best work for the government's objective?

Q2. Suppose the government wants to reduce the consumption of alcohol in the market by introducing a tax per bottle on the supplier's side. The government does not know what the demand curve looks but knows that prior to the tax, the equilibrium is at point E1, for all the consumers in the market. Suppose there are two scenarios of alcohol consumers in the market: i) an extremely inelastic demand curve for additive adult drinkers ii) a demand curve that is moderately elastic for young drinkers Please show your answer directly to a well labeled figure and explain what would occur under these two scenarios after adding the tax on the supplier's side, and on which scenario group this tax would best work for the government's objective?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter12: The Partial Equilibrium Competitive Model

Section: Chapter Questions

Problem 12.10P

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