Final answer:
Tax incidence illustrates how the burden of a tax is divided between consumers and producers, determined by the elasticity of demand and supply. In the soda tax example, the tax per liter is $8, with consumers experiencing a $5 burden per liter and producers a $3 burden per liter. Similar concepts apply to sin taxes such as those on cigarettes.
Step-by-step explanation:
The question pertains to the concept of tax incidence, which refers to the division of the burden of a tax between buyers and sellers in a market. The amount of the tax on a liter of soda is the difference between what consumers pay after the tax is introduced ($14) and what producers receive ($6), which is $8 per liter. To calculate the tax revenue, we would multiply this tax per unit by the total quantity sold after the tax is enacted, in this case, 18 billion liters. The tax incidence on consumers is the increase in price due to the tax, from the initial $9 to the $14 paid after the tax; hence a $5 per liter tax incidence on consumers. The tax incidence on the producers, however, is $3 per liter, which is the difference between the pre-tax price of $9 and the $6 they receive after the tax.
Sin taxes like those on cigarettes serve as a pertinent analogy to understand how tax incidence works. The elasticity of demand and supply determines how the tax burden is shared; more elastic demand suggests consumers are more sensitive to price changes and will likely reduce consumption, whereas more elastic supply suggests producers are more sensitive to price changes and are likely to reduce the quantity supplied. Therefore, the distribution of tax burden and the resultant revenue depend on the relative elasticities of demand and supply.