Question

Suppose that the U.S. government decides to charge wine consumers a tax. Before the tax, 20 billion bottles of wine were sold every year at a price of $5 per bottle. After the tax, 13 billion bottles of wine are sold every year; consumers pay $6 per bottle (including the tax), and producers receive $3 per bottle.

The amount of the tax on a bottle of wine is___

per bottle. Of this amount, the burden that falls on consumers is__

per bottle, and the burden that falls on producers is___

per bottle.

true/false : The effect of the tax on the quantity sold would have been smaller if the tax had been levied on producers.

True

False

Answer 1