Which of the following producers would you expect to support a tax on beer? Which would not? Explain your answer.
a. Producers of hard liquor. Cross-price elasticity with beer: −0.11.
Producers of hard liquor (Click to select)would notwould support a tax on beer because the cross-price elasticity is negative.
This means that the beer tax would:
increase the price that consumers would be willing to pay for liquor.
increase liquor consumption.
increase liquor consumption but decrease the price that consumers would be willing to pay for liquor.
reduce liquor consumption.
b. Producers of wine. Cross-price elasticity with beer: 0.23.
Wine producers (Click to select)wouldwould not support a tax on beer because the cross-price elasticity is positive.
This means that the beer tax would:
increase wine consumption, but consumers would only be willing to buy the wine at drastically reduced prices.
not affect wine consumption but increase the price that consumers would be willing to pay for wine.
increase wine consumption.
decrease wine consumption.