Calculating tax incidence

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Reference no: EM13741704

Suppose that the U.S. government decides to charge beer consumers a tax. Before the tax, 15 billion cases of beer were sold every year at a price of $7 per case. After the tax, 9 billion cases of beer are sold every year; consumers pay $10 per case (including the tax), and producers receive $4 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.

Reference no: EM13741704

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