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In: Economics

1) Consider the market for milk and suppose the government taxes milk at $0.50 a gallon....

1) Consider the market for milk and suppose the government taxes milk at $0.50 a gallon.

a) Draw a demand and supply diagram and label the following points:

A – the equilibrium without the tax

X – the price that consumers pay along with the quantity of milk under the tax

Z – the price that the sellers receive along with the quantity of milk under the tax

Suppose the tax decreases to $0.25

b) Explain what happens to the quantity of milk in the market?

c) What happens to consumer surplus?

d) What happens to producer surplus?

e) What happens to the deadweight loss?

f) What happens to government revenue?

Solutions

Expert Solution

Rahul Sunny answered 2 years ago
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