Answer: The answer is as follows:
Explanation:
Before the tax,
20 million bottles of wine were sold every month at a price of $5 per bottle
After the tax,
14 million bottles of wine are sold every month; consumers pay $8 per bottle (including the tax), and producers receive $2 per bottle.
The amount paid by consumers after tax is $8 per bottle and amount paid by producers is $2 per bottle.
∴ The amount of tax on wine = $8 - $2 = $6 per bottle
Tax burden on consumers = Price paid after tax - price paid before tax
= 8 - 5
=$3 per bottle
Tax burden on Producers = Price received before tax - price received after tax
= 5 - 2
=$3 per bottle
∴ The burden of tax falls equally on both consumers and producers of $3 per bottle each.
The statement is true. Whether the tax is levied on consumer or producer, the effect of the tax on the quantity sold is the same.
