3. Calculating tax incidence
Suppose that the local government of Corpus Christi decides to institute a tax on cider consumers. Before the tax, 35 million cases of cider were sold
every month at a price of $9 per case. After the tax, 29 million cases of cider are sold every month; consumers pay $12 per case (including the tax),
and producers receive $5 per case.
The amount of the tax on a case of cider is $7 per case. Of this amount, the burden that falls on consumers is $3 per case, and the
burden that falls on producers is $4 per case.
True or False: The effect of the tax on the quantity sold would have been smaller if the tax had been levied on producers.
O True
False
