Question
Suppose that the U.S. government decides to charge wine consumers a tax. Before the tax, 25 million bottles of wine were sold every month at
Suppose that the U.S. government decides to charge wine consumers a tax. Before the tax, 25 million bottles of wine were sold every month at a price of $5 per bottle. After the tax, 18 million bottles of wine are sold every month; consumers pay $6 per bottle (including the tax), and producers receive $3 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.
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