EP ECONOMICS,AP EDITION-CONNECT ACCESS
20th Edition
ISBN: 9780021403455
Author: McConnell
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Question
Chapter 18, Problem 2RQ
To determine
The marginal and average tax rate.
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Suppose that the U.S. government decides to charge cola producers a tax. Before the tax, 30 billion cases of cola were sold every year at a price of $4 per case. After the tax, 23 billion cases of cola are sold every year; consumers pay $5 per case, and producers receive $2 per case (after paying the tax).
The amount of the tax on a case of cola is $_________ per case. Of this amount, the burden that falls on consumers is $_________ per case, and the burden that falls on producers is $__________ 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 consumers.
Suppose that the U.S. government decides to charge wine producers a tax. Before the tax, 20 million bottles of wine were sold every month at a price of $5 per bottle. After the tax, 13 million bottles of wine are sold every month; consumers pay $6 per bottle, and producers receive $3 per bottle (after paying the tax).
The amount of the tax on a bottle of wine is ____ per bottle. Of this amount, the burden that falls on consumers is ____ per bottle, and the burden that falls on producers is _____ per bottle. (Answer all)
True or False: The effect of the tax on the quantity sold would have been larger if the tax had been levied on consumers.
Suppose that the U.S. government decides to charge wine consumers a tax. Before the tax, 15 million bottles of wine were sold every month at a price of $7 per bottle. After the tax, 9 million bottles of wine are sold every month; consumers pay $10 per bottle (including the tax), and producers receive $4 per bottle.
The amount of the tax on a bottle of wine is $_______ per bottle. Of this amount, the burden that falls on consumers is $________per bottle, and the burden that falls on producers is $_______per bottle.
Chapter 18 Solutions
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- Suppose that the U.S. government decides to charge beer consumers a tax. Before the tax, 35 billion cases of beer were sold every year at a price of $6 per case. After the tax, 28 billion cases of beer are sold every year; consumers pay $7 per case (including the tax), and producers receive $4 per case. The amount of the tax on a case of beer is $ _________ per case. Of this amount, the burden that falls on consumers is $_________ per case, and the burden that falls on producers is $___________per case. True or False: The effect of the tax on the quantity sold would have been the same as if the tax had been levied on producers. True Falsearrow_forwardSuppose that the for every 10% increase in the price of gasoline, consumers will decrease the quantity demanded by 1%, and suppliers will increase their supply of gasoline by 9%. Next, suppose that there is a $0.50 per gallon tax on gasoline, and after the tax quantity exchanged in the market is 15 billion gallons of gasoline. Given this information, what is the total government revenue from the tax? What is the consumer and producer tax incidence (how much of the tax revenue would have come from consumers, and how much from suppliers)? Search entries or author Reply. Unread ↓ 5 5 Replies are only visible to those who have posted at least one reply.arrow_forwardSuppose that the U.S. government decides to charge beer consumers a tax. Before the tax, 20 million cases of beer were sold every month at a price of $4 per case. After the tax, 14 million cases of beer are sold every month; consumers pay $5 per case (including the tax), and producers receive $1 per case. The amount of the tax on a case of beer is_______per case. Of this amount, the burden that falls on consumers is_______per case, and the burden that falls on producers is_____per case.arrow_forward
- Suppose George made $20,000 last year and that he lives in the country of Harmony. The way Harmony levies income taxes, all citizens must pay 10 percent in taxes on their first $10,000 in earnings and then 50 percent in taxes on anything else they might earn. Given that George earned $20,000 last year, his marginal tax rate on the last dollar he earns will be rate for his entire income will be and his average tax O 10 percent; 50 percent O 50 percent; less than 50 percent O 10 percent; less than 50 percent O 50 percent; 50 percentarrow_forwardSuppose a local government imposes a tax on sales of firewood. Before the tax, 20,000 bundles were sold at an average price of $6 per bundle. With the tax in effect, 16,000 bundles are sold, buyers pay $6.40 per pack, and sellers receive $5.50 per pack. In this scenario, the tax is $____ per pack, the tax incidence that falls on buyers is $______ per pack, and the tax incidence that falls on sellers is $______ per pack.arrow_forwardSuppose that the U.S. government decides to charge beer producers a tax. Before the tax, 15,000 cases of beer were sold every week at a price of $7 per case. After the tax, 10,000 cases of beer are sold every week; consumers pay $9 per case, and producers receive $6 per case (after paying the tax). The amount of the tax on a case of beer is ($_______) per case. Of this amount, the burden that falls on consumers isper case, and the burden that falls on producers is ($______) per case. True or False: The effect of the tax on the quantity sold would have been the same as if the tax had been levied on consumers.arrow_forward
- Question 5: Combined state and federal taxes on gasoline average around 50 cents per gallon, and these taxes are statutorily levied on gasoline sellers. Because the demand for gasoline is relatively inelastic compared to the supply of gasoline: buyers likely do not bear much of the actual burden because it is statutorily levied on sellers who must submit the tax payments. sellers likely bear most of the actual burden of the tax through lower gasoline prices. O the net price received by sellers after they pay taxes likely falls by almost the full amount of the tax. O buyers likely bear most of the actual burden of the tax through higher gasoline prices.arrow_forwardWhat is the benefit of having state and local taxes on income instead of collecting all such taxes at the federal level? What is the local tax in your county/city? Make sure to state the county/city and the tax rate. How does this compared to the tax rate of neighboring counties/cities? How do you feel about this? Does the location with the higher tax rate receive better amenities (schools, police, road conditions? Would you rather pay a higher tax for better service?arrow_forwardSuppose you are a typical person in the U.S. economy. You pay 4 percent of yourincome in a state income tax and 15.3 percent of your labor earnings in federal payrolltaxes (employer and employee shares combined). You also pay federal income taxes asin Table 2. How much tax of each type do you pay if you earn $30,000 a year? Taking alltaxes into account, what are your average and marginal tax rates? What happens toyour tax bill and to your average and marginal tax rates if your income rises to$60,000?arrow_forward
- Suppose in Fiscalville there is no tax on the first $10,000 of income, but a 20 percent tax on earnings between $10,001 and $20,000 and a 30 percent tax on income between $20,001 and $30,000. Any income above $30,000 is taxed at 40 percent. If your income is $50,000, how much will you pay in taxesarrow_forwardWhat is meant by a progressive tax? A regressive tax? A proportional tax? Comment on the progressivity or regressivity of each of the following taxes, indicating in each case where you think the tax incidence lies: (a) the Federal personal income tax; (b) a 4 percent state general sales tax; (c ) a Federal excise tax on automobile tires; (d) a municipal property tax on real estate; (e) the Federal corporate income tax; (f ) the portion of the payroll tax levied on employers.arrow_forwardSuppose in Fiscalville there is no tax on the first $10,000 of income, but a 20 percent tax on earnings between $10,001 and $20,000 and a 30 percent tax on income between $20,001 and $30,000. Any income above $30,000 is taxed at 40 percent. If your income is $50,000, how much will you pay in taxes? Determine your marginal and average tax rates. Is this a progressive tax? Explain.arrow_forward
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