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1. In 2009, the ACT government decided it wanted to reduce the level of binge drinking in night clubs in Canberra. To reduce the quantity
1. In 2009, the ACT government decided it wanted to reduce the level of binge drinking in night clubs in Canberra. To reduce the quantity of alcohol consumption, it considered three policy Options to effect the price of alcohol: a price oor, a price ceiling, and a per unit tax. Suppose the equilibrium price in the alcohol market is $5 per standard drink, and that at this price, 20,000 drinks are sold each evening. The government wants to reduce the drinking rate to only 16,000 drinks per evening. a) Draw a demandsupply diagram showing the equilibrium outcome prior to government intervention. b) Show that the desired fall in evening drinking can be achieved by (i) an appro priate price oor, (ii) an appropriate price ceiling, and (iii) an appropriate per unit tax. Illustrate your solutions with diagrams as needed. c) Perform a qualitative Welfare Analysis for the introduction of (i) an appropriate price oor, (ii) an apprOpriate price ceiling, and (iii) an apprOpriate per unit tax. That is, for each policy intervention, describe and show the qualitative change in Consumer Surplus, Producer Surplus, Government Tax Receipts, Total Surplus, and any Deadweight Loss. (1) Using your results from part (c), compare the various policy interventions in terms of their welfare effects. e) Assume further that demand and supply are linear, given reSpectively by: Demand: p = 25 - qd / 1000, Supply: p = qs / 4000
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