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Homework answers / question archive / Suppose the supply curve for beer can be written as P = 400 + 4Q and the demand curve for beer can be written as P = 1,000 - 2Q where P is the price of beer and Q is the quantity of beer

Suppose the supply curve for beer can be written as P = 400 + 4Q and the demand curve for beer can be written as P = 1,000 - 2Q where P is the price of beer and Q is the quantity of beer. (a) Show how to solve for equilibrium quantity Q and price Pe of beer, total expenditure on beer TE, and total revenue beer producers receive in equilibrium TRe. (b) Suppose the government considers beer as undesirable product in the society and imposes a tax on the consumers at $36 on each unit they produce. Demonstrate how to compute the quantity purchased Q', the price the consumers pay Pc, the price the producers keep Pp, total expenditure on beer TE', total revenue beer producers keep TR', and the tax revenue the government receives T'. (c) Compute the demand elasticity from part (a) and part (b). Plot all the results in a properly labeled diagram. How can you use the diagram and the demand elasticity to help you explain the difference in total expenditure on beer between part (a) and part (b). (d) How is the tax burden being distributed between the consumers and the producers? Use the bargaining power argument to explain the difference in tax burden between the consumers and the producers.