$6 Question 04 - Tax Incidence: Suppose Di and $1 S 1 are the demand and supply curves for beef. The equilibrium price is $3 per pound; the equilibrium quantity is 3 million pounds of beef per day. Now suppose an excise tax of $2 per pound of beef is Price per pound 3 Tax = $2/lb imposed. It does not matter whether the tax is levied on buyers or on sellers of beef; the 2 important thing to see is that the tax drives a $2 per pound "wedge" between the price buyers pay and the price sellers receive. This tax is D shown as the vertical green line in the exhibit; its height is $2. O 1 2 3 5 6 Millions of pounds per day We insert our tax "wedge" between the demand and supply curves. The price paid by buyers rises to $4 per pound. The price received by sellers falls to $2 per pound; the other $2 goes to the government. What was the tax revenue generated by the government? [= Tax * Quantity] How much of the $2 tax do consumers pay? How much of the $2 tax do producers pay? What is the inefficiency associated with the tax - that is the dead weight loss