Compute how the tax affects the price paid by consumers and the price received by producers

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### Practice Problems

Compute how the tax affects the price paid by consumers and the price received by producers

Problem 1

##### d. Suppose that each gallon of liquor consumed generates a negative externality on society of \$0.50. How would the negative externality affect the simple efficiency consideration that only focused on the DWL associated with the unit tax on liquor?
Hint
Accounts & Finance"Pre tax equilibrium when Qd=Qs500,000-20,000p=30,000pp=10Q=300,000after tax equilbrium500,000-20,000p=30,000(p-1)solving we get p=10.6Q=30000*(10.6-1)=288,000Consumers pay \$10.5 and producers \$9.6 as \$1 goes for tax"...

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