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.
Best Answer
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.