Question

Suppose that the U.S. government decides to charge wine producers a tax. Before the tax, 30,000 bottles of wine were sold every week at a price of $7 per bottle. After the tax, 25,000 bottles of wine are sold every week; consumers pay $9 per bottle, and producers receive $6 per bottle (after paying the tax). The amount of the tax on a bottle of wine is $_____ per bottle. Of this amount, the burden that falls on consumers is $_____ per bottle, and the burden that falls on producers is $_____ 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 consumers.

True

False

Answer 1

Ans: The amount of the tax on a bottle of wine is $3 per bottle. Of this amount, the burden that falls on consumers is $2 per bottle, and the burden that falls on producers is $1 per bottle.

Explanation:

Before the tax, 30,000 bottles of wine were sold every week at a price of $7 per bottle.

At this , producer received $7 per bottle and consumer paid $7 per bottle.

After the tax, 25,000 bottles of wine are sold every week; consumers pay $9 per bottle and producers receive $6 per bottle.

Now the consumer pays extra amount in terms of tax = $9 - $7 = $2 per bottle.

Now the producer pays the tax = $7 - $6 = $1 per bottle.

So the amount of the tax on a bottle of wine is = $2 + $1 = $3

Ans: False

Explanation:

The above statement is false.