Suppose that in the absence of any tax whatsoever, the equilibrium price of beer is €1.50 per litre. Now suppose that the government requires beer drinkers to pay a total tax (sales tax plus alcohol duty) of €0.50 on every litre of beer purchased.

a. Draw a supply and demand diagram of the market for beer without the tax. Show the price paid by consumers, the price received by producers and the quantity of beer sold. What is the difference between the price paid by consumers and the price received by producers?

b. Now draw a supply and demand diagram for the beer market with the tax. Show the price paid by consumers, the price received by producers and the quantity of beer sold. What is the difference between the price paid by consumers and the price received by producers? Has the quantity of beer sold increased or decreased?