5. Calculating tax incidence Suppose that the U.S. government decides to charge wine consumers a tax. Before
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5. Calculating tax incidence
Suppose that the U.S. government decides to charge wine consumers a tax. Before the tax, 45 million bottles of wine were sold every month at a price of $6 per bottle. After the tax, 40 million bottles of wine are sold every month; consumers pay $8 per bottle (including the tax), and producers receive $5 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 larger if the tax had been levied on producers.
a. True
b. False
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