Suppose that the U.S. Government decides to charge draft beer drinkers a tax.

Suppose that the U.S. Government decides to charge draft beer drinkers a tax. Before the tax, 35 million glasses of draft beer were sold every year at a price of $6 per glass. After the tax, 29 million glasses of draft beer are sold every year; consumers pay $9 per glass (including the tax) and producers receive $5.50 per glass.

a. The amount of the tax on draft beer is $ ____ per glass.

b. The amount of the tax on draft beer is $ ____ per glass.

c. The tax burden that falls on on producers is $ ____ per glass.

Solutions

Expert Solution

a. The amount of the tax on draft beer is $3.5 per glass.

b. The amount of the tax on draft beer is $3.5 per glass.

c. The tax burden that falls on on producers is $0.50 per glass.

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Explanation:

the amount of tax on consumer =new price after-tax - price before tax

=9-6=$3

the amount of tax on producer =before tax price - after tax receivable price

=6-5.5

=$0.5

tax per draft beer=tax amount paid by consumer + tax amount paid by producer =3+0.5=$3.5

Rahul Sunny answered 2 years ago

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