e. If the government set a price floor of $2.20 per bottle of alcohol, what effect does this have on the market? In particular, what is the quantity of alcohol consumed on the market and is there a shortage of alcohol created by this policy? Calculate and illustrate your answers. [10 marks]

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Jarrod RobelLv2

29 Jul 2018

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Related questions

c. The first policy is to impose a quota on production of 80 million bottles per month. What would happen to the market price? Calculate the change in income of producing alcohol brought about by the introduction of the quota system. Does income of producing alcohol increase or decrease as a result of the quota. Illustrate your results using the diagram. [10 marks]

Use the following table for this question
the Good Own Price Elasticity of Demand
Cigarettes -0.50
Alcohol -1.00
Soft Drink -1.50
(a) If the government could raise taxes on one good, which product should the government increase tax rates in order to raise tax revenue? Briefly explain why.
(b) Which of the three products has a unitary elastic demand curve?
(c) If the government wants to decrease the quantity consumed of cigarettes by 20%, what percentage of tax would they have to levy on cigarette consumption? Show your working.
(d) If the government wants to decrease the quantity consumed of alcohol by 20%, what percentage of tax would they have to levy on alcohol consumption? Show your working.
(e) If the government wants to decrease the quantity consumed of soft drink by 30%, what percentage of tax would they have to levy on soft drink consumption? Show your working.

Use the following table for this question

Good Own Price Elasticity of Demand

Cigarettes -0.50

Alcohol -1.00

Soft Drink -1.50

(a) If the government could raise taxes on one good, which product should the government increase tax rates to raise tax revenue? Briefly explain why.

(b) Which of the three products has a unitary elastic demand curve?

(c) If the government wants to decrease the quantity consumed of cigarettes by 20%, what percentage of tax would they have to levy on cigarette consumption? Show your work.

(d) If the government wants to decrease the quantity consumed of alcohol by 20%, what percentage of tax would they have to levy on alcohol consumption? Show your work. (e) If the government wants to decrease the quantity consumed of soft drinks by 30%, what percentage of tax would they have to levy on soft drink consumption? Show your work.