Question
5. Calculating tax incidence Suppose that the local government of Tulsa decides to institute a tax on soda consumers. Before the tax, 30 million liters
5. Calculating tax incidence
Suppose that the local government of Tulsa decides to institute a tax on soda consumers. Before the tax, 30 million liters of soda were sold every month at a price of $9 per liter. After the tax, 23 million liters of soda are sold every month; consumers pay $12 per liter (including the tax), and producers receive $6 per liter.
The amount of the tax on a liter of soda is
per liter. Of this amount, the burden that falls on consumers is
per liter, and the burden that falls on producers is
per liter.
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
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