Suppose that the government decides to tax potato chip producers for every bag of chips sold. Before the tax, 100 million bags of potato chips were sold every year at a price of $3 per bag. After the tax is imposed, 50 million bags are sold yearly with consumers paying $4 per bag and producers receiving $2.50 per bag.
What is the amount of the tax per bag of potato chips?
a. $0.50 b. $1.00 c. $1.50 d. $2.50
What is the incidence of the tax that falls on consumers?
a. $0 b. $0.50 c. $1.00 d. $1.50
What is the incidence of the tax that falls on producers?
a. $0 b. $0.50 c. $1.00 d. $1.50
In general, when a tax is imposed on a product, the buyers will bear a larger tax burden than the sellers if
supply is more elastic than demand.
the demand is more elastic than supply.
the tax is placed on the seller of the product.
the tax is placed on the buyer of the product.