$\begingroup$Australian Government has imposed a tax on Beer. Assume that the tax on Beer is $20 per unit (a unit is a carton of drinks) Assume the demand and supply functions for cartons of Beers per week are: P=200 - 0.5Q and P=0.5Q.
Calculate the amount of tax revenue collected by the government and the distribution of tax payments between buyers and sellers.
Now so far i could do the following
since in equilibrium qty demanded equals qty. supplied. So from the demand and supply functions we get,
0.5Q=200-0.5Q Q=200
So P=0.5*200= 100
Now i get that after tax imposition the supply curve will move leftward, hence the equilibrium price will increase and quantity demanded/supply will decrease. Now please help me to calculate the amount of tax revenue and tax distribution.
$\endgroup$21 Answer
$\begingroup$Presumably, your equations for demand and supply are before tax. You have found the volume correctly. We assume the units of $P$ and $Q$ are cartons, though this seems incongruous with the scale of the equations. Now the demand equation doesn't change, but the supply equation should have $P$ replaced by $P-20$ as the producer gets that much less revenue from the selling price.
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