Question

Suppose that the U.S. government decides to charge wine producers a tax. Before the tax, 40,000 bottles of wine were sold every week at a price of $7 per bottle. After the tax, 34,000 bottles of wine are sold every week; consumers pay $10 per bottle, and producers receive $4 per bottle (after paying the tax).

Answer 1

The amount of tax on a bottle of wine = $6 bottle

The burden that falls on consumer = $3 per bottle

The burden that falls on producer = $3 per bottle

Step-by-step explanation:

Consumer pay = $10 per bottle

Producer receive = $4 per bottle

The amount of tax on a bottle of wine = $10 - $4 = $6 per bottle.

Of this amount, the burden that falls on consumer = $7 - $4 = $3 per bottle

$7 is taken because, before tax, 40,000 bottles of wine were sold per week on $7 per bottle.

The burden that falls on producer = $10 - $7 = $3 per bottle