The local Chapel Hill government is very concerned with underage drinking and is considering two policies to decrease the consumption of beer. The demand for six-packs of beer in Chapel Hill is given by QD = 100 - 10P and the supply of six-packs of beer is given by QS = 10P.
a. Sketch a supply and demand diagram of the market for six-packs of beer in Chapel Hill. Be sure to label your curves, axes, intercepts, and calculate and label equilibrium P* and Q*.
b. If the government were to impose a price floor in the market for beer equal to 2 dollars more than the equilibrium price (P*+2), calculate and indicate the number of six-packs bought and sold, QFLOOR, on your diagram from part (a).
c. If the government were to impose a tax on consumers of $2, calculate and indicate the number of six-packs bought and sold, QTAX, on your diagram from part (a).
d. In one sentence, state which of the two policies breweries are likely to favor and why.
e. In one sentence, state which of the two policies beer drinkers are likely to favor and why.
f. Assume there are no external costs or benefits generated by the consumption or production of beer. If the government's goal is simply to decrease beer consumption, calculate the amount of deadweight loss generated by the policy they would choose to employ.
The local Chapel Hill government is very concerned with underage drinking and is considering two policies to decrease the consumption of beer. The demand for six-packs of beer in Chapel Hill is given by QD = 100 - 10P and the supply of six-packs of beer is given by QS = 10P.
a. Sketch a supply and demand diagram of the market for six-packs of beer in Chapel Hill. Be sure to label your curves, axes, intercepts, and calculate and label equilibrium P* and Q*.
b. If the government were to impose a price floor in the market for beer equal to 2 dollars more than the equilibrium price (P*+2), calculate and indicate the number of six-packs bought and sold, QFLOOR, on your diagram from part (a).
c. If the government were to impose a tax on consumers of $2, calculate and indicate the number of six-packs bought and sold, QTAX, on your diagram from part (a).
d. In one sentence, state which of the two policies breweries are likely to favor and why.
e. In one sentence, state which of the two policies beer drinkers are likely to favor and why.
f. Assume there are no external costs or benefits generated by the consumption or production of beer. If the government's goal is simply to decrease beer consumption, calculate the amount of deadweight loss generated by the policy they would choose to employ.
