macro question 6 ### 6. Calculating Tax IncidenceSuppose 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 $ [blank] per case.** **Of this amount, the burden that falls on consumers is $ [blank] per case, and the burden that falls on producers is $ [blank] 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- ☐ False### ExplanationIn this section, you are required to calculate the tax incidence—that is, how the burden of a tax is distributed between consumers and producers. The initial and post-tax sales prices provide information necessary to determine the tax burden. Additionally, considering the impact on the quantity sold allows analysis of the economic effects relative to the target group for the tax.### Instructions for Solving:1. **Amount of the Tax:** Calculate the difference between the consumer price post-tax and the producer price post-tax. 2. **Burden on Consumers:** Determine the increase in the price consumers pay due to the tax. 3. **Burden on Producers:** Calculate the reduction in the amount producers receive after the tax is applied.4. **Evaluate the True/False Statement:** Consider whether taxing producers directly affects the quantity sold more significantly than taxing consumers by examining the shift in supply and demand curves.This activity aids in understanding the principles of tax incidence and the influence of taxes on market outcomes. The objective is not only to find numerical answers but to grasp the economic concepts behind the redistribution of tax burdens between different market participants.

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 $ 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.

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 $ 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.

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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5. Calculating tax incidence Suppose that the local government of Santa Fe decides to institute a tax on seltzer consumers. Before the tax, 20,000 packs of seltzer were sold ever week at a price of $11 per pack. After the tax, 14,000 packs of seltzer are sold every week; consumers pay $14 per pack (including the tax), and producers receive $7 per pack. The amount of the tax on a pack of seltzer is $ burden that falls on producers is $ O True per pack. True or False: The effect of the tax on the quantity sold would have been the same as if the tax had been levied on producers. False per pack. Of this amount, the burden that falls on consumers is $ per pack, and the
7 The equilibrium price of a good is $15. Suppose the government introduces a tax on this good. In this case, the price paid by consumers is 1.4 times more than the equilibrium price, and the price received by producers is 1.2 times less than the equilibrium price. Calculate the amount of tax per good. Enter your answer in the box below and round to two decimal places if necessary.
es The demand for gasoline is P=5-0.002 Q and the supply is P=0.2 + 0.002 Q, where P is in dollars and Q is in gallons. Instructions: Round your answer to the nearest penny (2 decimal places). If a tax of $0.6/gallon is placed on petrol, what is the incidence of the tax? Tax incidence to the consumer: $ Tax incidence to the supplier: $ Instructions: Round your answers to the nearest whole number. What is the lost consumer surplus? $ What is the lost producer surplus? $
8. Suppose we want regular cars to be gradually replaced by electric cars. There are several kinds of government interventions that could be used to make this happen, or at least to push the car market to produce and sell more electric cars. Explain how a tax could be used for this purpose, and then explain how a subsidy could be used for this purpose.
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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? $
The quantity demanded of salt decreases when the price of pepper increases. This is an example of * own-price elasticity. supply elasticity. income elasticity. O rubber band elasticity. cross-price elasticity. If the government wants to put a per unit tax on a product so that it can raise revenue to support local schools, it would most likely accomplish this goal by doing which of the following? * O placing a tax on a good with an elastic demand. placing a tax on a good that has many substitutes. placing a tax on a good with an inelastic demand. placing a tax on a good with a perfectly elastic demand. O relying of the goodness of mankind and simply ask for donations.
7. Effect of a tax on buyers and sellers The following graph shows the weekly market for craft beer in some hypothetical economy. Suppose the government levies a tax of $20.30 per case. The tax places a wedge between the price buyers pay and the price sellers receive. PRICE (Dollars per case) 100 90 80 Demand Supply 70 60 50 40 40 30 20 10 Tax Wedge 0 0 100 200 300 400 500 600 700 800 900 1000 QUANTITY (Cases of craft beer) Complete the following table by filling in the quantity sold, the price buyers pay, and the price sellers receive before and after the tax. Quantity (Cases of craft beer) Price Buyers Pay (Dollars per case) Price Sellers Receive (Dollars per case) Before Tax After Tax Using your answers from the previous table, calculate the tax burden that falls on buyers and on sellers, respectively, and calculate the price elasticity of demand and supply over the relevant ranges using the midpoint method. Enter your results in the following table. Tax Burden (Dollars per case)…
7. Effect of a tax on buyers and sellers Part 2 The following graph shows the daily market for wine. Suppose the government institutes a tax of $10.15 per bottle. This places a wedge between the price buyers pay and the price sellers receive.
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?
Under which circumstances does line tax burden fall entirely on consumers?