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1c. (7 points) Let's say the policy will be funded through a $3 tax on sales of 12-packs of beer. The competitive market for 12-packs
1c. (7 points) Let's say the policy will be funded through a $3 tax on sales of 12-packs of beer. The competitive market for 12-packs of beer is given by a demand curve: Q= 2300-100P and a supply curve of Q= 200P -1000. What is the pre-tax equilibrium? What are CS, PS and TS in the market for beer? Now let sellers pay a $3 Tax for each 12-pack sold. That is, the cost of supplying a unit of beer rises by $3 for each Q, since the tax is a new cost of doing business. What is the new Q of beer purchased with the tax? What is the new price you see in the store? How much of that price is kept by the seller? How much government revenue (GR) is raised? Is it enough to pay for the apple a day program? Graphically, show the new CS, PS, GR, and deadweight loss (DWL). How large in dollars is the DWL? Is that a cost or benefit of the program? Therefore, what are the net benefits of the tax? What are the total net benefits to society of this program? Would you recommend it be undertaken-why or why not
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