Answer to Question #183464 in Microeconomics for Serge Ouonde

Question

Suppose that the Ontario government is concerned that people are drinking too much alcohol

Answer 1

I will assume that this question is about how the government will reduce the consumption of alcohol.

The government should introduce taxes on alcoholic drinks in order to make people drink less especially during this lockdown period. This will cause the prices of alcoholic drinks to rise hence reducing the demand. Let's take, for instance, Wine and Beer are the most consumed alcoholic drinks and their price elasticity is both equal to one but the price elasticity of supply is greater than one for Beer and less than one for Wine. The demand for both Wine and Beer will have proportional changes and the slope of the demand curve will be the same.

The supply curve, therefore, shifts upwards due to the tax.

For Wine, the supply curve for wine is inelastic and therefore, the intercept will be negative. More of the tax burden goes to the producers while the buyers and consumers bear fewer tax burdens.

it is clear that the quantity equilibrium for Beer has fallen more than that of Wine. Also, the government earns more revenue from tax-induced Wine.