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5. Calculating tax incidence

Suppose that the U.S. government decides to charge cola producers a tax. Before the tax, 40 million cases of cola were sold every month at a price of

$5 per case. After the tax, 34 million cases of cola are sold every month; consumers pay $6 per case, and producers receive $2 per case (after paying
the tax).

$4
The amount of the tax on a case of cola is $3 per case. Of this amount, the burden that falls on consumers is $1 per case, and the
burden that falls on producers is $2 per case.

Points: 0.33 / 1

Explanation: Close Explanation

After the tax is imposed, the buyer's total cost of purchasing a case of cola rises from $5 to $6. The tax also reduces the price producers receive

from $5 to $2 per case. The tax is equal to the difference between these two prices:

Because consumers pay $1 more per case ( ) than they did before the tax, this represents the burden that falls on consumers. Similarly,

producers receive $3 less per case ( ) than they did before the tax, so this represents the burden that falls on producers.

True or False: The effect of the tax on the quantity sold would have been smaller if the tax had been levied on consumers.

True

False

Points: 1/1

Explanation: Close Explanation

The equilibrium quantity of cola produced, the amount consumers pay per case of cola, and the amount producers receive for each case of cola
are all independent of who pays the tax. Regardless of whether the tax is levied on consumers, causing the demand curve to shift by the

amount of the tax, or on producers, causing the supply curve to shift by the amount of the tax, the new quantity at which the curves intersect
will be the same. Therefore, it doesn't matter whether the government imposes the tax on consumers or producers.

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Aplia: Student Question http://courses.aplia.com/af/servlet/quiz?quiz_action=takeQuiz&quiz_pr...

Tax on Consumers

10 10

9 9

8 8 Supply

7 7

6 6
S + Tax Supply
5 5

4 4

3 3
D-Tax
2 2

1 1

0 0
0 8 16 24 32 40 48 56 64 72 80 0 8 16 24 32 40 48 56 64 72 80

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