$Q\mathrm{.}5.(20$ Points$)Inan$ effort $to$ reduce alcohol consumption, the government $is$

considering $a$ $$1$ tax $on$ each gallon $of$ liquor sold $(the$ statutory incidence $ison$

producers$).$ Suppose that the demand curve $is{Q}^D=500,000-20,000P$ where $Q^D$

$is$ the number $of$ gallons $of$ liquor demanded and $Pis$ the price per gallon. The

supply curve $is{Q}^S=30,000P$ and $Q^{S}is$ the number $of$ gallons supplied.

$a.$ Compute price paid $by$ consumers, $P_g,$ and price received $by$ producers, $P_n.$

$b.$ How much revenue does the tax raise for the government? How much $of$ the

revenue comes from consumers and how much from producers?

$c.$ Suppose that the demand for liquor $is$ more elastic for younger drinkers that

the older drinkers. Will the liquor tax $be$ more, $or$ less, $or$ equally effective $at$

reducing liquor consumption among young drinkers? Explain.

$d.$ Draw a graph $to$ illustrate the excess burden $of$ the tax. Calculate excess

burden.

$e.$ Suppose that each gallon $of$ liquor consumed generates a negative external

$cost$ $$0\mathrm{.}50.$ How does this effect the excess burden associated with the unit

tax $on$ liquor?