Calculate the tax revenue the government can collect

Reference no: EM133552749

Complete the following practice FRQs. You must fully explain when asked to, fully label all graphs, & show all work for math when asked to.

FRQ 1: Assume that sugar-based soft drinks are produced in a market shown on the graph above. Answer the following questions based on the information given in the graph. If the question prompts you to "Calculate," you must show how you arrived at your final answer. Only explain an answer when you are asked to.

(a) To reduce the consumption of sugary soft drinks, suppose the government imposes a $2 per-unit sales tax on soft drinks.

(i) Will the price of soft drinks increase by the full amount of the sales tax? Explain.

(ii) Calculate the tax revenue the government can collect from the sale of soft drinks. Show your work.

(iii) Will the consumer surplus increase, decrease, or stay the same after the tax?

(iv) Calculate the deadweight loss created by the tax. Show your work.

(b) Suppose that instead of imposing the per-unit sales tax, the government sets a price ceiling of $7. Identify the quantity of soft drinks that will be exchanged in the market as a result of the price ceiling. Explain.

Reference no: EM133552749

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