Question: Please draw the graph correctly In an effort to reduce alcohol consumption, the government is considering a $1 tax on each gallon of liquor sold

 Please draw the graph correctly In an effort to reduce alcohol

Please draw the graph correctly

In an effort to reduce alcohol consumption, the government is considering a $1 tax on each gallon of liquor sold (the tax is levied on producers). Suppose that the supply curve for liquor is upward sloping and its equation is Q=30,000P (where Q is the number of gallons of liquor and P is the price per gallon). The demand curve for liquor is Q=500,00020,000P. a. Draw a sketch to illustrate the excess burden of the tax. Next use algebra to calculate the excess burden. Show graphically the excess burden generated by the $1 unit tax. (Hint: Compare the losses of both consumer and producer surplus to tax revenues.) b. Suppose that each gallon of liquor consumed generates a negative external cost of $0.50. How does this affect the excess burden associated with the unit tax on liquor

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!