economics

A. Given the above stated preference and supply information, how much alcohol (in ounces) will the average consumer purchase in an average month? How much all other goods will this consumer purchase?

B. The program being heavily lobbied by business is to have a tax placed on alcohol such that consumption will be 75 per cent of its original level (i.e., that found in part A. of this problem). How much will such a tax have to be in order to achieve this result? No tax will be placed or increased on all other goods.

C. What are the income and substitution effects of the tax imposed in part B.

D. Incensed by this tax proposal, a coalition of avid "sport" drinkers has formed and decided to lobby Congress to not impose the tax. Assuming s/he would do so, how much would the average person be willing to donate to this lobbying effort? In other words, how much would the average person be willing to pay (in a lump-sum) to avoid having the tax imposed and keep the price of alcohol at its original level?

E. If the tax found in part B is imposed, what is the incidence of the tax? In other words, after the tax how much would the average person have to be compensated in order to make him/her as well off as he/she was prior to the imposition of the tax?

F. If the tax found in part B is imposed, how much would the average person have to be compensated in order to make it possible for him/her to consume the same level of alcohol s/he did prior to the tax? If this person were actually compensated this amount, how much alcohol and all other goods would this person actually consume?


G. To make the tax proposal slightly more palatable to the average consumer, one state legislator has proposed that any amount of tax collected from the average person be rebated to that person. This rebate would take the form of coupons (sometimes called “vouchers”) that the consumer can use to purchase anything except alcohol.

1. What would be the value of the coupons received by the average consumer?

2. If this plan is instituted along with the proposed tax, by how much will the average consumer's alcohol consumption be reduced?

3. Would the average consumer be better or worse off with this plan than (s)he was before any tax/rebate policy was instituted? How much better or worse off? Explain briefly. (You can measure this anyway you wish! You must, however, measure it with a number.)



You did not supply the "above stated preference and supply information"

In any case, before reposting, do some research on your own then take a shot. The Jiskha volunteers want to help guide your thinking and not do the problems for you.

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