question archive Suppose that the U
Suppose that the U
Subject:EconomicsPrice:2.88 Bought3
Suppose that the U.S. government decides to charge cola producers a tax. Before the tax, 45,000 cases of Cola were sold every week at a price of $5 case. After the tax, 39,000 cases of cola are sold every week; consumers pay $6 per case, and producers receive $2 per case (after paying the tax).
The amount of the tax on a case of cola is $_____ per case. Of this amount, the burden that falls on consumers is $_____ per case, and the burden that falls on producers is $_____ per case.
True or False: The effect of the tax on the quantity sold would have been larger if the tax had been levied on consumers.
a. True
b. False
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In the mentioned case study the amount of tax on a case of cola is $4 per case and of this amount, the consumer burden per case of cola is $1 and the amount of producer burden per case of Cola is $3. Therefore from the above findings, it can be concluded that the demand for a case of cola is highly elastic in comparison to the elasticity of supply of Cola and therefore the imposition of tax on the consumers would have resulted in a similar outcome.
