Question 2

Suppose that the government decides Australians should reduce the consumption of

alcohol and, therefore, imposes a tax on alcohol.

a) Should this tax be imposed on sellers or buyers? Explain using both words and a

diagram.

b) Will this tax be more effective or less effective in reducing alcohol consumption if

the demand for alcohol is relatively elastic? (Hint: Draw two figures, side by side,

with the same supply curve and different demand curves.)

c) Who is going to bear more tax burden, buyers or sellers, if the demand for alcohol

is relatively elastic? Explain with the help of a figure.

Please answer with evidence (Including Graph)