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The assumption in the above diagram (supply and demand curves for beer) is that the there is no taxation taking place. Q1 is the quantity supplied and P2 is the market price. Essay Example

Why a Government would be more likely to impose a tax on the sale of beer than on the sale of luxury cars, using the deadweight loss concept.

Dead weight loss is excess burden or inefficiently caused by monopoly pricing or in the case of a government tax. Deadweight also occurs when people whose marginal benefit for a product is more that its marginal cost are not buying the product while those buying the product are those whose marginal cost is more than marginal benefit. In other words the occurrence of the loss is caused by the less attractive goods or service caused by tax, which reduces the desires of individuals to purchase those products. The tax also causes financial suffering to tax payers causing them to change their behavior or to reduce the tax burden. In this case, it is caused by a government when it imposes tax on the sale of beer than on the sale of luxury cars to increase its revenue by preventing its citizens from turning into alcoholics and allowing them to improving on their living standards by subsidizing on luxury cars.

The assumption in the above diagram (supply and demand curves for beer) is that the there is no taxation taking place. Q1 is the quantity supplied and P2 is the market price.

The assumption in the above diagram (supply and demand curves for beer) is that the there is no taxation taking place. Q1 is the quantity supplied and P2 is the market price.

The assumption in the above diagram (supply and demand curves for beer) is that the there is no taxation taking place. Q1 is the quantity supplied and P2 is the market price. 1

The assumption in the above diagram (supply and demand curves for beer) is that the there is no taxation taking place. Q1 is the quantity supplied and P2 is the market price. 2

The assumption in the above diagram (supply and demand curves for beer) is that the there is no taxation taking place. Q1 is the quantity supplied and P2 is the market price. 3

When government imposes tax on beer, supply and demand is reduced moving to Q2. Government revenue is at A. Deadweight loss from tax is at B. The government imposes tax on beer to increase its selling price. This however makes beer less attractive to customers who buy it in less quantity or doesn’t buy it at all. Too much alcohol consumption may cause alcoholism and immoral behaviors in individuals. By taxing beer and raising its prices, less and less people are likely to buy and those who buy may only do so in small quantities and thus ensuring that good morals prevail in the country as well as sober citizens. Taxation creates economic inefficiency always.

Reference List

Mankiw, G 2011. Principles of Economics, 6th edn, Cengage Learning, pp. 163