Question

In: Economics

Suppose that the Canadian government decides to charge cereal consumers a per-unit tax (a tax on...

Suppose that the Canadian government decides to charge cereal consumers a per-unit tax (a tax on each unit purchased). Before the tax, 50,000 boxes of cereal were sold every week at a price of $6 per box. After the tax, 43,000 boxes of cereal are sold every week; consumers pay $9 per box (including the tax), and producers receive $4 per box.

The amount of the tax on a box of cereal is

per box. Of this amount, the burden that falls on consumers is

per box, and the burden that falls on producers is

per box.

Solutions

Expert Solution

Beofre the tax:

50,000 boxes of cereal were sold every weel at a price of $6 per box.

It means equilibrium quantity is 50,000 cereal boxes.

Price paid by consumer before tax = $6

Price recevied by producer before tax = $6

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Afte tax:

After the tax, 43,000 boxes of cereal are sold every week; consumers pay $9 per box (including the tax), and producers receive $4 per box.

It means quantity traded after tax is 43,000 cereal boxes

Price paid by consumer after tax = $9

Price received by producer after tax = $4

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Calculation:

The amount of tax = Price paid by consumer after tax - Price received by producer after tax

=> The amonut of tax = $9 - $4

=> The amount of tax = $5

Answer: The amount of tax on a box of cereal is $5 per box

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The burden of tax falls on consumer = Price paid by consumer after tax - Price paid by consumer before tax

=> The burden of tax falls on consumer = $9 - $6

=> The burden of tax falls on consumer = $3

Answer: Out of tax $5, the burden that falls on consumer is $3 per box

-------------------------------------------------------------------------

The burden of tax falls on producer = Price received by producer before tax - Price recieved by producer after tax

=> The burden of tax falls on producer = $6 - $4

=> The burden of tax falls on producer = $2

Answer: Out of tax $5, the burden that falls on producer is $2 per box

Rahul Sunny answered 1 year ago

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