Answer to Question #115188 in Microeconomics for Brenna

Question

To reduce the consumption of sugary soft drinks, suppose the government imposes a $2 per-unit sales tax on soft drinks.per-unit sales tax on soft drinks.
Will the price of soft drinks increase by the full amount of the sales tax? Explain.
Calculate the tax revenue the government can collect from the sale of soft drinks. Show your work.
Will the consumer surplus increase, decrease, or stay the same after the tax?
Calculate the deadweight loss created by the tax. Show your work.

Answer 1

The prices of the drinks paid by the consumer which is the price received by the producer plus the amount of tax will rise.It will rise by the exact same amount as the tax would rise if the tax was collected from the producer rather thsn consumer.

Tax revenue to be collected by the government is the tax charged hich is 2$ per unit multiplied by the no of units sold.

Consumer surplus will decrease because of decreased demand which shifts the demand curve to the left.

Deadweight loss is the cost created by market inefficiency ,which in this

case is reduced demand.