The annual demand for liquor in a certain state is given by the following equation:
QD = 500,000 – 20,000P
Where P is the price per gallon and QD is quantity of gallons demanded per year. The supply of liquor is given by the equation
QS = 30,000P
Solve for the equilibrium annual quantity and price of liquor.
Suppose that a $1-per-gallon tax is levied on the price of liquor received by sellers. Use both graphic and algebraic techniques to show the impact of the tax on market equilibrium. Calculate the excess burden of the tax, the amount of revenues collected, and the incidence of the tax between buyers and sellers.