Caculating tax incidence Suppose that the U.S. government decides to charge cola
ID: 1210572 • Letter: C
Question
Caculating tax incidence Suppose that the U.S. government decides to charge cola producers a tax. Before the tax, 35 billion cases of cola were sold every year at a price of $4 per case. After the tax, 29 billion cases of cola are sold every year; consumers pay $5 per case, and producer receive $1 per case(after paying the tax). The amount of the tax on a case of cola is_______per case, of this amount, the burden that fails on consumer is______per case, and the burden that fails on producers is_______per case. True or False: The effect of the tax on the quantity sold would have been smaller if the tax had been levied on consumer SmallCircle True SmallCircle FalseExplanation / Answer
(a) Amount of tax = Price paid by consumers - Price received by producers = $5 - $1 = $4 per case
(b) Burden on consumers = Price paid after tax - Price paid before tax = $5 - $4 = $1
(c) Burden on producers = Price received before tax - Price received after tax = $4 - $1 - $3
(d) True
Burden of tax does not depend on whether tax is levied on consumers or on producers.