Suppose that the U.S. government decides to charge wine consumers a tax. Before the tax, 40 million bottles of wine were sold every month at a price of $5 per bottle. After the tax, 34 million bottles of wine are sold every month; consumers pay $6 per bottle (including the tax), and producers receive $2 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.
True or False: The effect of the tax on the quantity sold would have been smaller if the tax had been levied on producers.

True
False

To calculate the amount of tax on a bottle of wine, we can subtract the price received by producers from the price paid by consumers. In this case, consumers pay $6 per bottle and producers receive $2 per bottle, so the tax amount is $6 - $2 = $4 per bottle.

To determine the burden that falls on consumers, we can subtract the price consumers paid before the tax from the price they pay after the tax. Before the tax, consumers paid $5 per bottle, and after the tax, they pay $6 per bottle. Therefore, the burden on consumers is $6 - $5 = $1 per bottle.

The burden on producers can be calculated by subtracting the price received by producers after the tax from the price they received before the tax. Before the tax, producers received $5 per bottle, and after the tax, they receive $2 per bottle. Hence, the burden on producers is $5 - $2 = $3 per bottle.

Now, let's evaluate the statement: "The effect of the tax on the quantity sold would have been smaller if the tax had been levied on producers."

False. The quantity sold decreased from 40 million bottles per month to 34 million bottles per month. The burden of the tax, whether it falls on consumers or producers, does not affect the quantity sold. It is determined by factors such as consumer preferences, price elasticity, and market conditions. Thus, the effect of the tax on quantity sold would not have been different if it had been levied on producers instead.

True