Question

Suppose that the U.S. government decides to charge wine producers a tax. Before the tax, 10...

Suppose that the U.S. government decides to charge wine producers a tax. Before the tax, 10 million bottles of wine were sold every month at a price of \$4 per bottle. After the tax, 3 million bottles of wine are sold every month; consumers pay \$7 per bottle, and producers receive \$2 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

price after tax paid by consumer = \$7

price after tax received by producer = \$2

so tax = \$7 - \$2 = \$5 , so The amount of the tax on a bottle of wine is -\$5----per bottle.

earlier consumer paid \$4 , now he pays \$7 , so increased payment = \$3

earlier producer received \$4 and now he receives \$2 , burden = \$4 - \$2 = .\$2

Of this amount, the burden that falls on consumers is----\$3---per bottle, and the burden that falls on producers is---\$2---per bottle.

FALSE :The effect of the tax on the quantity sold would have been smaller if the tax had been levied on consumers.

because in current scenario \$5 are shared by both producer and consumer , but if the entire tax of \$5 was levied on consumer , so fall in quantity would have been more .