Among the tax proposals regularly considered by U.S. Congress is an additional tax on distilled liquors. The tax would not apply to beer. The price elasticity of supply of liquor is 4.0, and the price elasticity of demand is -0.2. The cross-elasticity of demand (how much demand for one product changes in response to an increase in the price of another product) for beer with respect to the price of liquor is 0.1.

a. If the new tax is imposed, who will bear the greater burden, liquor suppliers or liquor consumers? Why?

b. Assuming that beer supply is infinitely elastic, how will the new tax affect the beer market? Only a qualitative answer is necessary. (Hint: Sketching out supply and demand in the beer market before and after the liquor tax might be helpful.)