5. Calculating tax incidence
Suppose that the U.S. government decides to charge beer producers a tax. Before the tax, 10 billion cases of beer were sold every year at a price of $6 per case. After the tax, 5 billion cases of beer are sold every year; consumers pay $8 per case, and producers receive $5 per case (after paying the tax).
The amount of the tax on a case of beer 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 consumers.
True
False
1. Tax on a per case of beer is $3. ( $2 paid by consumer + $1 paid by producer)
2. The tax amount paid by a consumer is $2. (New price - old price = $8 - $6)
3. The tax amount paid by a producer is $1. (Old price receive - New price receive = $6 - $5)
True because a consumer will decrease his consumption in a large quantity until the demand for a good is inelastic.
Suppose that the U.S. government decides to charge beer producers a tax. Before the tax, 10 billion cases of beer were sold every year at a price of $6 per case
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