Suppose the federal government requires beer drinkers to pay a $2 tax on each case of beer purchased. (a) Draw a supply-and-demand diagram of the market for beer without the tax. Show the price paid by consumers, the price received by producers, and the quantity of beer sold. What is the difference between the price paid by consumers and the price received by producers? (b) Now draw a supply-and-demand diagram for the beer market with the tax. Show the price paid by consumers, the price received by producers, and the quantity of beer sold. What is the difference between the price paid by consumers and the price received by producers? Has the quantity of beer sold increased or decreased? (c) Can you identify any government revenues? (d) Is there any inefficiency, and if so, can you define it and label it on the graph? Solution for C and D
Question 3 -
Suppose the federal government requires beer drinkers to pay a $2 tax on each case of beer purchased.
(a) Draw a supply-and-demand diagram of the market for beer without the tax. Show the
(b) Now draw a supply-and-demand diagram for the beer market with the tax. Show the price paid by consumers, the price received by producers, and the quantity of beer sold. What is the difference between the price paid by consumers and the price received by producers? Has the quantity of beer sold increased or decreased?
(c) Can you identify any government revenues?
(d) Is there any inefficiency, and if so, can you define it and label it on the graph?
Solution for C and D
Equilibrium is achieved at the output level where quantity supplied equals quantity demanded. With the introduction of tax the price paid by consumer increases whereas the price received by producer decreases leading to dead weight loss.
Step by step
Solved in 4 steps with 3 images
