A long hot summer has increased the demand for beer; at the same time a tax is placed on alcohol. What can we say about the equilibrium price and quantity of alcohol?

Question

Quizplus · Accepted Answer

The increased demand for beer due to a long hot summer would typically push the equilibrium price and quantity higher. However, the imposition of a tax on alcohol would increase the cost of supplying alcohol, which tends to raise the price but lower the quantity supplied. The combined effect will definitely increase the price (due to both increased demand and higher costs from the tax), but the effect on quantity is uncertain without more information about the relative magnitudes of the demand increase and the supply decrease due to the tax.

A Long Hot Summer Has Increased the Demand for Beer;