Score: /2 S. Calculating tax incidence Suppose that the U.S. government decides

Question

Score: /2 S. 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 anfount of the tax on a case of beer is burden that falls on producers is S per case. of this amount, the burden that falls on consumers is per case, and the 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 O False

Explanation / Answer

Amount of tax on beer = price consumers pay-price suppliers recieve

= 8-5=3 per case.

Burden on consumers= price paid after tax - price paid before tax

= 8-6=2

Burden on suppliers= price received before tax - price recieved after tax

= 6-5=1

The given statement is false. It does not depend on whom the tax is imposed. The burden of tax depends on the elasticity. Three higher the elasticity the lower is the burden. If demand is more elastic than supply then larger burden falls on suppliers and vice versa.

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