Q2. Suppose the government wants to reduce the consumption of alcohol in the market by introducing a tax per bottle on the supplier's side. The government does not know what the demand curve looks but knows that prior to the tax, the equilibrium is at point E1, for all the consumers in the market. Suppose there are two scenarios of alcohol consumers in the market: i) an extremely inelastic demand curve for additive adult drinkers ii) a demand curve that is moderately elastic for young drinkers Please show your answer directly to a well labeled figure and explain what would occur under these two scenarios after adding the tax on the supplier's side, and on which scenario group this tax would best work for the government's objective?
Q2. Suppose the government wants to reduce the consumption of alcohol in the market by
introducing a tax per bottle on the supplier's side. The government does not know what the
demand curve looks but knows that prior to the tax, the equilibrium is at point E1, for all the
consumers in the market. Suppose there are two scenarios of alcohol consumers in the market:
i) an extremely
ii) a demand curve that is moderately elastic for young drinkers
Please show your answer directly to a well labeled figure and explain what would occur under
these two scenarios after adding the tax on the supplier's side, and on which scenario group
this tax would best work for the government's objective?
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 2 images
