Question

2. Consider a market for what we will call sugary drinks. The graph below shows the supply and demand for sugary drinks, where is the price per unit and is the quantity in thousands. Elected officials are contemplating imposing a tax on this product. The tax will be $0.5 per sugary drink sold and will legally be paid by the sellers a) Graphically show the new equilibrium with the tax of $0.5/unit. (2 points) price ceiling

Answer 1

tax. + Price control consumohy Price ceiling 1.25! bure producers saint errore c) If the gout. wants to achieve the largest possible reduction in sugary drink consumption it should use the approach of tase with I price control as the burden of tone falls on mauno producers since the price they are getting is lower they will supply I less and quantity will fall even more (as seen in the graph). d) of the gone wants to raise as much tan Irenente as possitile it should use . Tax without price control. Because tan fer sunt is the same in both the cases BUT aty support traced in tax with frice control is more theryone loin revenue (which is tax per unit x gty) will be more

Hi, your answer to part a is right but do revise the answer to part c (which is based on part b). Let me know if anything is unclear :)