A quantitative analysis of the current market for cheap wine,… 1 answer below »

A quantitative analysis of the current market for cheap wine, based on the illustrative model given in the table above (first row, highlighted); and an evaluation of the effects on this market of three possible policies: (i) implementing a $13 per litre price floor on wine (i.e. $1.30 per standard drink, in addition to the current tax); (ii) replacing the current 29% proportionate price tax with a volumetric tax of $5/L ($0.50 per standard drink); and (iii) a combination of these two policies. An illustrative model showing the operating position for an individual price-taking producer of cheap wine, currently in long-run equilibrium; with an analysis of how this firm will be affected by these three polices. A discussion of alcohol policy, drawing on the three papers supplied, and of your results. Comment on how these policies affect consumers, producers, the government, and society overall. Also comment on how these policy alternatives compare in terms of their ability to improve efficiency by correcting for market failure, or are likely to present government failure.

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