Question

Suppose that the U.S. government decides to charge wine producers a tax. Before the tax, 20,000 bottles of wine were sold every week at a price of $4 per bottle. After the tax, 13,000 bottles of wine are sold every week; consumers pay $5 per bottle, and producers receive $2 per bottle (after paying the tax).The amount of the tax on a bottle of wine is $______ per bottle. Of this amount, the burden that falls on consumers is $_____ per bottle, and the burden that falls on producers is $_____ per bottle.

Answer 1

(a) $3

(b) $1

(c) $2

Step-by-step explanation:

(a) The amount of the tax on a bottle of wine:

= Price paid by consumers - Price received by sellers

= $5 - $2

= $3

(b) The burden that falls on consumers:

= Price paid by consumers after tax - Price paid by consumers before tax

= $5 - $4

= $1

(c) Burden that falls on producers:

= Price received by sellers before tax - Price received by sellers after tax

= $4 - $2

= $2