Suppose that the U. S. government decides to charge wine consumers a tax. Before the tax, 40 million bottles of wine were sold every month, at a price of $5 per bottle. After the tax, 34 million bottles of wine are sold every month; consumers pay $6 per bottle (including the tax), and producers receive $2 per bottle. The amount of the tax on a bottle of wine is how much per bottle? Of this amount, the burden that falls on consumers, is how much per bottle, and the burden that falls on producers is how much per bottle?True or False: The effect of the tax, on the quantity sold, would have been smaller, if the tax had been levied on producers.

The answer is given below

Explanation:

From the question, we are informed that before the tax, 40 million bottles of wine were sold every month, at $5 per bottle and that after the tax, 34 million bottles of wine are sold every month;

consumers pay $6 per bottle which include the tax and producers receive $2 per bottle.

Since after tax, the amount that is paid by the consumers is $6 per bottle and the amount that is received by the producers is $2 per bottle. Therefore, the amount of tax on wine will be:

= $6 - $2

= $4 per bottle

The tax burden that falls on the consumers will be the difference between the price paid after tax and the price that is paid before the tax. This will be:

= $6 - $5

= $1 per bottle

The tax burden on the producers will b the difference between the price received before the tax and the price received after the tax. This will be:

= $5 - $2

= $3 per bottle

False, the effect of the tax, on the quantity of wines that are sold, would not have been smaller, if the tax had been levied on the producers. The effect is thesame whether it's levied on the producers or on the consumers.

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