Suppose a state government imposes a tax on sales of drinks withhigh sugar content. Before...

Suppose a state government imposes a tax on sales of drinks with high sugar content. Before the tax, 20 million six packs were sold at $2.50 per pack. With the tax in effect, 16 million six packs are sold, buyers pay $3.20 per pack, and sellers receive $2.30 per pack.

A.) In the scenario above, what is the tax ($ per six pack)?

B.) In the scenario above, what is the tax incidence that falls on the sellers? ($ per six pack)?

Solutions

Expert Solution

A. Tax= Price paid by buyers- Price received by sellers

= $3.2-$2.3

= $0.90

B. Tax incidence that falls on the seller= Before tax equilibrium price- After tax price received by seller

= $2.5-$2.3

=$0.20

Rahul Sunny answered 1 year ago

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