Consider the market for beef discussed in this chapter. Suppose that the government decides to fight cholesterol by levying a tax of 50 cents per pound on sales of beef. Follow these steps to analyze the effects of the tax:
a. Construct the new supply schedule that relates quantity supplied to the price that consumers pay.
b. Graph the new supply curve constructed in Test Yourself Question 7(a) on the supply-demand diagram depicted in Figure. What are the new equilibrium price and quantity?
c. Does the tax succeed in its goal of reducing the consumption of beef?
d. How much does the equilibrium price increase? Is the price rise greater than, equal to, or less than the 50 cent tax?
e. Who actually pays the tax, consumers or producers?