5. Calculating tax incidence

Imagine that the Australian government decides to charge wine consumers a tax. Before the tax, 45,000 bottles of wine were sold every week at a price of $4 per bottle. After the tax, 39,000 bottles of wine are sold every week; consumers pay $7 per bottle (including the tax), and producers receive $1 per bottle.

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 producers.

True

False