Problem: Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must have all axes and curves clearly labeled and must show directional changes. If the question prompts you to "Calculate," you must show how you arrived at your final answer.
Assume that sugar-based soft drinks are produced in a market shown on the graph above. Answer the following questions based on the information given in the graph.
(a) To reduce the consumption of sugary soft drinks, suppose the government imposes a $2 per unit sales tax on soft drinks.
(i) Will the price of soft drinks increase by the full amount of the sales tax? Explain.
(ii) Calculate the tax revenue the government can collect from the sale of soft drinks. Show your work.
(iii) Will the consumer surplus increase, decrease, or stay the same after the tax?
(iv) Calculate the deadweight loss created by the tax. Show your work.