6. Calculating tax incidence Suppose that the U.S. government decides to charge cola consumers a tax. Before the tax, 10 million cases of cola were sold every month at a price of $4 per case. After the tax, 4 million cases of cola are sold every month; consumers pay $7 per case (including the tax), and producers receive $1 per case. The amount of the tax on a case of cola is s per case. Of this amount, the burden that falls on consumers is $ per case, and the burden that falls on producers is s 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. True O False

6. Calculating tax incidence Suppose that the U.S. government decides to charge cola consumers a tax. Before the tax, 10 million cases of cola were sold every month at a price of $4 per case. After the tax, 4 million cases of cola are sold every month; consumers pay $7 per case (including the tax), and producers receive $1 per case. The amount of the tax on a case of cola is s per case. Of this amount, the burden that falls on consumers is $ per case, and the burden that falls on producers is s 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. True O False

Microeconomics: Principles & Policy

14th Edition

ISBN:9781337794992

Author:William J. Baumol, Alan S. Blinder, John L. Solow

Publisher:William J. Baumol, Alan S. Blinder, John L. Solow

Chapter6: Demand And Elasticity

Section: Chapter Questions

Problem 3TY

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In a market where the supply curve is perfectly inelastic how does an excise tax affect the price paid by consumers and the quantity bought and sold?
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1. What is the relationship between total revenue and own-price elasticity of demand? 2. Illustrate a situation when the producer of a good will have a greater tax incidence than a consumer.What does elasticity have to do with tax incidence?
Suppose that the government enacts a tax on retail sales of road salt, which homeowners and businesses put on walkways and driveways. Assume that the supply of salt is perfectly elastic, due to the ease with which suppliers can stockpile the product.Before the tax, 900 fifty-pound bags of road salt are sold at an equilibrium price of $7 per bag. After the tax, 775 bags are sold at $8 per bag. How much revenue does the tax generate for the government? What is the amount of the tax? $
7. Effect of a tax on buyers and sellers The following graph shows the weekly market for handbags in some hypothetical economy. Suppose the government levies a tax of $11.60 per bag. The tax places a wedge between the price buyers pay and the price sellers receive. PRICE (Dollars per bag) 50 G 40 35 30 25 20 = 10 16 0 0 50 Tax Wedge Supply A Demand 100 150 200 250 300 350 400 450 5007 QUANTITY (Bags of handbags)