Question

Suppose that the U.S. government decides to charge cola producers a tax. Before the tax, 50 billion cases of cola were sold every year at a price of $5 per case. After the tax, 44 billion cases of cola are sold every year; consumers pay $6 per case, and producers receive $2 per case (after paying the tax).


The amount of the tax on a case of cola 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, and the burden that falls on producers is $ _____ per case.


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


a. True

b. False

Answer 1

Answer:

U.S. Tax Burden on Cola:

The amount of the tax on a case of cola is $4 per case. Of this amount, the burden that falls on consumers is $1 per case, and the burden that falls on producers is ___$3______ per case.

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

a. True

b. False

Explanation:

The tax burden on consumers, which is represented by the difference in the price of cola from $5 to $6 per unit is $1 ($6 - $5).  However, the cash received by producers reduced by $3 from $5  to $2.  This shows that the total tax burden on both consumers and producers is $4 ($1 + $3).

This represents a total tax burden of $4 or about 67% based on the new selling price of cola or 80% based on the old selling price of cola.

"The effect of the tax on the quantity sold would have been larger if the tax had been levied on consumers alone.   This because the price of cola would have increased to $9 per unit.  Since the demand for cola in this instance is elastic, this change in price would have caused a more than 80% change in the quantity demanded.

Answer 2

The amount of the tax on a case of cola is $4 per case. Of this amount, the tax burden that falls on consumers is $1 per case, and the burden that falls on producers is $3 per case.

What do you mean by tax burden?

Tax Burden is a measure of the tax liability imposed by the government on the citizens of a country.

The tax burden on consumers, represented by the price difference of cola from $ 5 to $ 6 per unit is $ 1 ($ 6 - $ 5).

However, producers' revenue has been reduced by $3 from $ 5 to $2.

This indicates that the total tax burden on both buyers and producers is $4 ($ 1 + $ 3).

This represents a total tax burden of $4 or approximately 67% based on the new sales value of cola or 80% based on the old sales value of cola.

Therefore, The statement is true; "The impact of taxes on the sale price would be huge if the tax was levied on consumers alone. This is because the price of cola would increase to $ 9 per unit.

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