Question

Suppose that the U.S. government decides to charge beer producers a tax. Before the tax, 50 million cases of beer were sold every month at a price of $5 per case. After the tax, 44 million cases of beer are sold every month; consumers pay $8 per case, and producers receive $2 per case (after paying the tax). 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. True False

Answer 1

Answer: false

Explanation: if consumers pay $8 and producers only received $2 after paying tax, then it means producers were paying tax of $6.

But before this tax, consumers were buying at $5 and producers alone were receiving $5 without paying tax.

This implies that consumers now pay a tax of $3 and producers pay $6 out of the $8 per case from consumers, therefore the tax was levied on both consumers and producers thats why consumption rate decreased from 50 million to 44 million cases with producers paying twice the amount consumers pay.