1. First, locate the equilbrium price and quantity. Which lettered regions in the graph represent consumer and producer surplus before the proposed tax? Which lettered regions represent consumer and producer surplus after the proposed tax takes effect? Did these surpluses increase or decrease? Why?
Read the following scenario carefully and then answer the following questions and perform the graphical tasks below:
A firestorm of controversy erupted recently on social media outlets and the national press as three teens died attempting to complete the Monster Challenge, which involves recording a person's mass consumption of energy drinks in a very small window of time. Five others were rushed to the hospital. Deeper investigation by media outlets has shed light on the disturbing number of Americans who are hopelessly addicted to energy drinks.
Lawmakers, including Senator Miller (D-CA), have called for an aggressive tax on energy drinks to stop this scourge that is ravaging the community. The Miller Bill would place a two dollar tax on energy drink tall cans (that on average cost $2.50) in all American markets. Other members of Congress led by Senator Cruz (R-TX), however, believed that tax to be too high, so the Miller Bill was amended to decrease the size of the tax to just one dollar.
Therefore, Senator Miller has asked his team of young, expert economists (that's you all) to project the effects of this smaller, one dollar tax on the energy drink market.
Produce a graph that contains all of the information below:
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- Supply curve (with proper price elasticity based on the nature of the product)
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- Tax price
- Tax incidence
- Tax revenue
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(The best way to do this is probably to assign each enclosed polygon a letter - Triangle A, Trapezoid F, etc.)
1. First, locate the equilbrium price and quantity. Which lettered regions in the graph represent consumer and
We will make some certain assumptions. Firstly, the demand(DD) for the energy drink is highly likely to be inelastic. This is an addictive product, so the prices won’t affect the quantity much. Secondly, the supply(SS) curve is assumed to be elastic, because energy drinks can be supplied in greater amount when the prices increase.
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