What fraction of the tax hike is passed to consumers

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Reference no: EM13176408

Drink Tax: The weekly supply Qs(p), and demand, Qd(p), of beer in a city are given by: Qs(p) = p; Qd(p)=6.2 - .55*p where p is the price of a beer in dollars and quantities are in hundreds of thousands of beers. To find the equilbrium quantity and price I equated the two and found quantity and price to be 400,000 and $4. Now a 10% tax on retail alcohol sales has been introduced.

a) How much is consumed after the introduction of the tax (the new equilibrium) and what price will consumers pay?

b) What fraction of the tax hike is passed to consumers?

c) What are the consumer surplus, producer surplus, and tax revenue collected by the government?

d) Calculate the deadweight loss (DWL) induced by the tax. How can DWL be interpreted as inefficiency?

Reference no: EM13176408

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