Question
Assume the state government has decided to impose a tax on wine. The market for wine is currently at an equilibrium with the price per
Assume the state government has decided to impose a tax on wine. The market for wine is currently at an equilibrium with the price per bottle of wine being $15 and the quantity exchanged being 20,000 bottles per month. Assume the elasticity of demand is .75 and the elasticity of supply is . The government plans on imposing a tax of $1.50 per bottle. a) Use a diagram to indicate the situation in this market before the tax is imposed. Label the price consumers pay PC0, the price producers receive PP0, the quantity supplied QP0, the quantity demanded QC0, and the quantity exchanged QE0. b) In your diagram, indicate the situation in this market after the tax is imposed. Label the price consumers pay PC1, the price producers receive PP1, the quantity supplied QP1, the quantity demanded QC1, and the quantity exchanged QE1. Clearly indicate in your diagram the amount of the tax (per unit) as well as the amount of revenue the government will collect from this tax. c) Calculate the amount of revenue the government will earn from this tax. I want an exact number. Show all Work!
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