U.K. Alcohol Tax Changes

The U.K. government announced last week that alcoholic beverages will now be taxed based on their alcohol-by-volume (ABV) level. While most wines and spirits will rise in price, prices will fall on drinks with lower alcoholic percentages, as well as most sparkling wine.—theguaridan.com

Answer the following questions to check your understanding of the story.

1) If the demand for alcohol is inelastic, who will pay the additional tax on the drinks that have a high ABV level?

The additional tax will be paid ____________.

a) mostly by the buyer

b) mostly by the seller

c) only by the seller

d) only by the buyer

2) If the demand for alcohol is inelastic, how will the tax revenue change when the additional tax is added to high ABV beverages?

Tax revenue will ____________.

a) decrease because people will substitute from high ABV beverages to low ABV beverages

b) increase because consumers will not change the quantity of alcohol they purchase

c) increase because the increase in the tax decreases the quantity sold by a relatively small amount

d) decrease because the increase in the tax decreases the quantity sold by a relatively large amount

U.K. Alcohol Tax Changes

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