Question

Suppose that there is currently a $2 per bottle of tax on vodka that is levied on consumers. Legislators have decided to give consumers some relief by eliminating the tax. In order to keep tax revenues at their previous level, they decide to impose a $2 tax on producers. What is the net impact of these two actions?a. Consumers of vodka are made better offb. Producers of vodka are made better offc. The government is made better offd. There is no change in consumers' or producers' well being

Answer 1

Answer:

There is no change in consumers' or producers' well being

Explanation:

Currently consumers of vodka were levied tax of $2. However, government decided to provide tax relief to consumers and shift the burden on producer. There will be no change in the well being of consumers and producers.

Tax is a cost that shifts demand curve if consumers pay tax. Supply curve shifts if producers pay tax. The overall effect, however remains the same. If producers pay tax, cost per unit vodka will increase which will be reflected increased prices. Similarly, if consumers pay tax, they will demand lesser. so there is no change overall.