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djverab [1.8K]
3 years ago
9

5. Calculating tax incidence Suppose that the U.S. government decides to charge cola consumers a tax. Before the tax, 40 billion

cases of cola were sold every year at a price of $5 per case. After the tax, 34 billion cases of cola are sold every year; consumers pay $6 per case (including the tax), and producers receive $2 per case. The amount of the tax on a case of cola is $ per case. Of this amount, the burden that falls on consumers is $ per case, and the burden that falls on producers is $ per case. True or False: The effect of the tax on the quantity sold would have been larger if the tax had been levied on producers. True False
Business
1 answer:
vazorg [7]3 years ago
4 0

Answer:

The amount of tax on a case of Cola is ;

= Selling price - Producer gain

= 6 - 2

= $4

The burden that falls on consumers is;

= Current selling price - Previous selling price

= 6 - 5

= $1

The burden that falls on the producers is;

= Selling price less consumer tax - Producer gain

= 5 - 2

= $3

The effect of the tax on the quantity sold would have been larger if the tax had been levied on producers. <u>FALSE. </u>

Whether the tax is on the producer or on the consumer makes no difference because the quantity sold will be the same. The statement is therefore false.

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