-Suppose the government has declared beer to be an illegal substance and has imposed equal penalties on any person caught buying a beer and on any person caught selling a beer. 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 has imposed equal penalties on any person caught buying a beer and on any person caught selling a beer. 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 penalties on both buyers and sellers shift the supply and demand curves, resulting in a new equilibrium with a lower quantity and price.

-Suppose the Government Has Declared Beer to Be an Illegal