Question
Suppose the inverse demand curve for beer in Perth has the following form: P = 75 - 2Q, where P is the price of a
Suppose the inverse demand curve for beer in Perth has the following form: P = 75 - 2Q, where P is the price of a carton of beer, and Q is the quantity of beer (in million cartons per day) demanded in the market. The market supply curve for beer is given as: P = 50 + 3Q. a. What are the point elasticities of demand and supply at the equilibrium? b. Now assume that a unit tax of $20 is placed on the producer. Write the expression for the new supply curve. Calculate the tax revenue, consumer surplus, producer surplus and deadweight loss in the post-tax situation. What is the distribution of the tax burden? c. What if the tax was imposed on the buyers? Write the expression for the new demand curve. Calculate the tax revenue, consumer surplus, producer surplus and deadweight loss in the post-tax situation. What is the distribution of the tax burden? d. Compare your results from b and c and comment.
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