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Suppose that, in the market for soda drinks, demand is given by P= 48 – 0.6Q,...

Suppose that, in the market for soda drinks, demand is given by P= 48 – 0.6Q, and supply is given by P= 0.2Q. Further, suppose that the government decides to impose a $4 per soda drink.

A. On a graph, demonstrate the effect of the tax on the equilibrium price and quantity. (Clearly label the value of each both before and after the tax.)

B. Show on the graph and calculate the tax revenue and deadweight loss that result from the tax.

C. Who bears the greater burden of the tax, producers or consumers? Explain why this is the case.

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