Question

Suppose that the U.S. government decides to charge beer producers a tax. Before the tax, 40 billion cases of beer were sold every year at a price of $7 per case. After the tax, 34 billion cases of beer are sold every year; consumers pay $8 per case, and producers receive $4 per case (after paying the tax), and producers receive $5 per case. The amount of the tax on a case of beer is $1 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 the same as if the tax had been levied on producers. True False

Answer 1

Answer:

$4

$1

$3

False

Explanation:

Tax is a compulsory sum levied by the government or an agency of the government on goods and services.

Taxes increases the price of products

Total amount of tax = new price of a case of beer - amount producers receive

$8 - $4 = $4

Burden of tax on consumers = new price of a case of beer - initial price

$8 - $7 = $1

Burden of tax on producers = Total amount of tax - Burden of tax on consumers

$4 - $1 = $3

the statement is false because if the tax has been imposed on producers, producers would not be able to share the burden of the tax with consumers. Thus, the whole burden of tax would have been borne by producers and the effect would be higher