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# 5 Calculating tax incidence Suppose that the U S government decid

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5. Calculating tax incidence Suppose that the U.S.
government decides to charge beer consumers a tax.
Before the tax, 15 billion cases of beer were sold every
year at a price of \$7 per case. After the tax, 9 billion
cases of beer are sold every year; consumers pay \$10 per
case (including the tax), and producers receive \$4 per
case. The amount of the tax on a case of beer 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 producers. True False
Solution
Tax on a case of beer = 10- 4 = \$6
The amount which consumers will pay = 10 - 7 = \$3
The amount which producers will pay = 7 - 4 = \$3
The amount of the tax on a case of beer is \$6, per case. Of
this amount, the burden that falls on consumers is \$3 per
case, and the burden that falls on producers is \$3 per
case.
The effect of the tax on the quantity sold would have been
larger if the tax had been levied on producers.
The statement is TRUE as if the tax levied on producers
would be more, they would reduce the supply as their profit

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5. Calculating tax incidence Suppose that the U.S. government decides to charge beer consumers a tax. Before the tax, 15 billion cases of beer were sold every year at a price of \$7 per case. After the tax, 9 billion cases of beer are sold every year; consumers pay \$10 per case (including the tax), and producers receive \$4 per case. The amount of the tax on a case of beer 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 h ...
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