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, 10 million cases of beer were sold every month at a price of $6 per case. After the tax, 5 million cases of beer are sold every month; consumers pay $8 per case (including the tax), and producers receive $5 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. True False

Explanation / Answer

The amount of tax paid for 6pack beer is( 8-5)=3$ per six pack every year. Of this the burden falls on the customer is

(8-6)=2$ Per six pack.the burden that falls on the producers is 6-5=1$per six pack.

Hence yes true and the effect on the quantity sold would have been larger if the tax had been levied on producers.

The effect does not depend on who levies customer or produce the elasticity decides who will be paying the tax.

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