1:17 AM Wed Jul 6

1:17 AM Wed Jul 6 TODOU TOPIC: According to a report released by StatCan on February 15, 2022 entitled Alcohol sales increase despite COVID-19 pandemic-related restrictions and closures, "Overall, $25.5 billion worth of alcoholic beverages were sold in the fiscal year ending March 31, 2021, up 4.2% from a year earlier .... Net income and other government revenue derived from the control and sale of alcoholic beverages, including excise taxes, retail sales taxes, specific taxes on alcohol, and licence and permit revenues, increased 5.2% to $13.5 billion." The Canada Revenue Agency (CRA) has been asked by Prime Minister Trudeau to find ways to generate more government revenue. One proposal under consideration is to add an additional excise tax to bottles of wine. While the price of wine varies, the average price of a bottle of wine is $12. Approximately 700 million bottles of wine are sold in Canada each year. Wine is a normal good. The elasticity of demand for wine is -.8 and the elasticity of supply for wine (in the short-run) is .4, but 1.2 in the long run (over time). Your colleague proposes the following, "let's generate a $2 per bottle excise tax on wine. This will cause the average price of wine to increase to $14 and generate approximately $1.4 billion in government revenue." Prepare a written response to your colleague commenting on his proposal. Explain what you expect to happen in the wine market using your knowledge of demand, supply and elasticity that you saw in the course. How do you think this will impact consumer and producer surplus? Provide a graph to help illustrate your points. @ 220/0 (4) 2 4