-Suppose the government has declared beer to be an illegal substance and imposes a fine on any person caught selling a beer. Buying beer, however, remains legal. Using the above figure, in which CBL is the cost of breaking the law, what is the equilibrium price and quantity with this new law in effect?
A) $5 per quart and 300 quarts of beer
B) $3 per quart and 500 quarts of beer
C) $3 per quart and 100 quarts of beer
D) $1 per quart and 300 quarts of beer

Question

-Suppose the government has declared beer to be an illegal substance and imposes a fine on any person caught selling a beer. Buying beer, however, remains legal. Using the above figure, in which CBL is the cost of breaking the law, what is the equilibrium price and quantity with this new law in effect?
A) $5 per quart and 300 quarts of beer 
B) $3 per quart and 500 quarts of beer 
C) $3 per quart and 100 quarts of beer 
D) $1 per quart and 300 quarts of beer

Quizplus · Accepted Answer

The equilibrium price and quantity occur where the supply curve, adjusted for the cost of breaking the law (CBL), intersects the demand curve. This results in a higher price and lower quantity than without the law, which matches option A.

-Suppose the Government Has Declared Beer to Be an Illegal