What portion of the tax would be borne by buyers

Reference no: EM13198580

A city which does not tax alchohol is considering the introduction of a $0.40 per 6 pack tax. The economic advisors to the city estimate the supply and demand curves for cigarettes as:
QD = 140,000- 25,000P QS = 20,000 + 75,000P, where Q = daily sales in 6 packs of beer, and P = price per 6 pack. The city has hired you to provide the following information regarding the beer market and the proposed tax.
a. What are the equilibrium values in the current environment with no tax?
b. What price and quantity would prevail after the imposition of the tax? What portion of the tax would be borne by buyers and sellers respectively?
c. Calculate the deadweight loss from the tax. What tax revenue will be generated?

Reference no: EM13198580

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