Suppose that the U.S. government decides to charge beer consumers a tax. Before

Question

Suppose that the U.S. government decides to charge beer consumers a tax. Before the tax, 45 billion cases of beer were sold every year at a price of $5 per case. After the tax, 38 billion cases of beer are sold every year; consumers pay $8 per case (including the tax), and producers receive $3 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 larger if the tax had been levied on producers.

Explanation / Answer

The amount of the tax on a case of beer is $6 per case. Of this amount, the burden that falls on consumers is $$3 =($10 - $7) per case, and the burden that falls on producers is $$3=($7-$4) per case.

False

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