Deadweight loss of commodity taxation

Reference no: EM131244283

Deadweight Loss of Commodity Taxation In March 2015, Berkeley became the first US jurisdiction to implement a soda tax. This question is designed to think about the impacts of this tax. Let the price of soda in Berkeley be equal to P per ounce. Suppose each individual in Berkeley has a demand for beverages equal to Qdi = 10 20P, where Qdi is measured in ounces per person. Let total supply of soda be equal to QS = 8, 000, 000 ? P , which is measured in ounces for the whole market. Suppose there are 100, 000 people in Berkeley.

(a) Using the individual demands Qdi , calculate the market demand for soda Qd.

(b) Compute the market equilibrium for soda in Berkeley. What are the equibrium price and quantity? (Suggestion: You can express supply and demand to be in millions of ounces to make it easier to write).

(c) Now, suppose a tax of t = .01$ per ounce is imposed in Berkeley. Compute the market equilibrium for soda after the tax has been imposed. What are the new price and quantity?

Reference no: EM131244283

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