- Back to Assignment Attempts: Keep the Highest: 12 4. Calculating tax incidence Suppose that the U.S. government

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- Back to Assignment Attempts: Keep the Highest: 12 4. Calculating tax incidence Suppose that the U.S. government decides to charge wine consumers a tax. Before the tax, 25 billion bottles of wine were sold every year at a price of $7 per bottle. After the tax, 19 billion bottles of wine are sold every year; consumers pay $8 per bottle (including the tax), and producers receive $4 per bottle The amount of the tax on a bottle of wine is s burden that falls on producers is 5 per bottle of this amount, the burden that falls on consumers is per bottle, and the per bottle True or False: The effect of the tax on the quantity sold would have been smaller if the tax had been levied on producers. e True O False Grade It Now Save & Continue Continue without saving

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Before tax price = $7 per bottle After imposition of tax, Price paid by consumers = $8 per bottle Price received by producers = $4 per bottle Amount of tax = Price paid by consumers after tax - Price received by producers after tax Amount of tax = $8 - $4 = $4 The amount of tax is $4. Burden on consumers = Price paid by consumers after tax - Before tax price = $8 - $7 = $1 The burden of tax on consumers is $1. Burden on producers = Before tax price - Price received by producers = $7 - $4 = $3 The burden of tax on producers is $3. Thus, The amount of the tax on a bottle of wine is $4 per bottle. Of this amount, the burden that falls on consumer is $1 per bottle, and the burden that falls on producers is $3 per bottle. The effect of tax remains same whether tax is levied on producers or consumers. Thus, The given statement is False.

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- Back to Assignment Attempts: Keep the Highest: 12 4

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