Question 5 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?
Question 5
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
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?
e) If the producer has an inelastic supply curve, which market participant has
the bigger tax burden? Explain.
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