In Canada, all provinces except Alberta have a minimum legal retail price for beer (a price floor). Part of the rationale for this policy is to discourage immoderate consumption of alcohol. Suppose the fictitious province of Beerlandia has the following annual demand and supply schedule for beer (sold in cases of 24 bottles).

a. Find the equilibrium price and quantity of cases of beer in Beerlandia. Draw a diagram representing the market for beer in the province. Clearly label the price paid by consumers, the quantity of beer exchanged, and the price received by suppliers in equilibrium.

b. Suppose the provincial government of Beerlandia decides to impose a legal minimum price of $28 per case of 24 bottles of beer. Briefly describe the winners and losers of this minimum price law.

c. Suppose the majority of the residents of Beerlandia live close to the border and have access to beer at a lower price either in another province or in the United States. What do you expect to occur? What does this imply about the ability of the provincial government of Beerlandia to independently set its tax and alcohol/beer pricing policy? Which jurisdiction is likely to be more problematic, other Canadian provinces or the U.S. states?

Transcribed Image Text:

Quantity demanded (thousands of cases) Quantity supplied (thousands of cases) Price (per case) 1 040 $16 18 800 1 000 100 20 960 1 200 22 920 1 400 24 880 1 600