Suppose a local government votes to impose an excise tax of $1.00 per bottle on the sales of bottled water. (Assume that all bottles are identical and residents cannot shop elsewhere.) Before the tax, the equilibrium price and quantity are $1.00 and 2000 bottles per day. After the tax is imposed, market equilibrium adjusts to a price of $1.80 and a quantity of 1400 bottles per day.

a. Draw the supply-and-demand diagram before and after the excise tax is imposed.

b. How much revenue from the tax does the local government collect each day?

c. After imposition of the tax, what is the after-tax price received by the sellers? What is the total after-tax revenue received per day by the sellers?

d. Who bears most of the burden of this excise tax, and why?