Government intervention (II) (Question 10): Suppose that, in the market for soft drinks (in litres),

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Government intervention (II) (Question 10): Suppose that, in the market for soft drinks (in litres),      demand is given by
P = 20 –0.3
Q; and      supply is given by
P =0.1
Q. In order to raise revenue, the government decides to impose a$0.5 per litre tax on soft drinks. Use these facts to answer thefollowing questions.     A) On a graph, demonstrate the effect of thetax on the equilibrium price and quantity. (Clearly label the valueof each both before and after the tax.)     B) Show on the graph and calculate the taxrevenue and deadweight loss that result from the tax. Brieflyexplain why a per-unit tax results in a deadweight loss.     C) Graphically show the incidence of the taxi.e. the consumers and producers burden of the tax.         i)Who bears thegreater burden of the tax, producers or consumers? Explain why thisis the case.         ii)If the elasticityof supply increased, what do you expect to happen to the incidenceof the tax? Explain.     D) Apart from a per-unit tax, what is anothermeasure that the government could impose to reduce the quantity ofsoft drink consumed? Evaluate whether this is better than aper-unit tax. Is there a measure which will not result in adeadweight loss?     E) Given that a per unit tax createsdeadweight loss and is not Pareto efficient, identify a Paretoimproving transaction to eliminate this deadweight loss. . . .

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