Effects of a tax on producers of corn syrup, Taxation

In response to rising obesity, a number of pundits have proposed taxing corn syrup, an ingredient in most soda pop. Let's consider the market for corn syrup assuming this tax takes effect. Suppose the government collects a 50 cent tax from producers for each gallon sold.

a. Draw a graph which shows the effects of a tax on producers of corn syrup (to receive full credit you must place the tax on sellers and not use a tax wedge). Identify the price buyers pay, the price sellers receive, the quantity sold in the market, the tax revenue generated for the government, consumer surplus, producer surplus and the deadweight loss.

b. How does the tax on corn syrup affect the price and quantity bought and sold of soda pop? Explain (a graph may be helpful).

Posted Date: 3/25/2013 6:06:20 AM | Location : United States

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