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14 June, 04:29

Suppose that the U. S. government decides to charge wine producers a tax. Before the tax, 40,000 bottles of wine were sold every week at a price of $7 per bottle. After the tax, 34,000 bottles of wine are sold every week; consumers pay $10 per bottle, and producers receive $4 per bottle (after paying the tax).

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  1. 14 June, 04:51
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    The amount of tax on a bottle of wine = $6 bottle

    The burden that falls on consumer = $3 per bottle

    The burden that falls on producer = $3 per bottle

    Explanation:

    Consumer pay = $10 per bottle

    Producer receive = $4 per bottle

    The amount of tax on a bottle of wine = $10 - $4 = $6 per bottle.

    Of this amount, the burden that falls on consumer = $7 - $4 = $3 per bottle

    $7 is taken because, before tax, 40,000 bottles of wine were sold per week on $7 per bottle.

    The burden that falls on producer = $10 - $7 = $3 per bottle
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