Suppose that the government decides to charge cola consumers an excise tax. Before the tax, 12 million cases of cola are sold every month at a price of $3.50 per case. After the tax, 6million cases of cola are sold every month; consumers pay $4.00 per case and producers receive $2.00 per case. a. What is the excise tax on cola? b. On whom does the incidence of the tax fall more heavily? c. How much government revenue will be generated by the excise tax?
Suppose that the government decides to charge cola consumers an excise tax. Before the tax, 12 million cases of cola are sold every month at a price of $3.50 per case. After the tax, 6million cases of cola are sold every month; consumers pay $4.00 per case and producers receive $2.00 per case. a. What is the excise tax on cola? b. On whom does the incidence of the tax fall more heavily? c. How much government revenue will be generated by the excise tax?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Suppose that the government decides to charge cola consumers an excise tax. Before the
tax, 12 million cases of cola are sold every month at a price of $3.50 per case. After the
tax, 6million cases of cola are sold every month; consumers pay $4.00 per case and
producers receive $2.00 per case.
a. What is the excise tax on cola?
b. On whom does the incidence of the tax fall more heavily?
c. How much government revenue will be generated by the excise tax?
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