Answer all Bold questions please. Suppose that the U.S. government decides to ch

Question

Answer all Bold questions please.

Suppose that the U.S. government decides to charge beer consumers a tax. Before the tax, 10 billion cases of beer were sold every year at a price of $7 per case. After the tax, 5 billion cases of beer are sold every year; consumers pay $9 per case (including the tax), and producers receive $6 per case.

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 smaller if the tax had been levied on producers.

Explanation / Answer

1.

Amount of tax per case of beer = (9-7) + (7-6) = $3 per case

2.

Burden on consumers = 9-7 = $2 per case

Burden on producers = 7-6 = $1 per case

3.

False

It is about the demand and supply as well as the elasticity of demand and supply. Hence, the sale of product is independent of tax applied upon the producers or consumers.

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