Suppose that the government decides to charge cola consumers an excise tax. Before the tax, the market is in equilibrium, where 12 million cases of cola are sold every month at a price of $3.50 per case. After the tax, 6 million cases of cola are sold every month; consumers pay $4.00 per case and producers receive $2.00 per case. Using this information, what is the excise tax on cola?
consumers pay $4, producers get $2, ergo the tax is $2 per case. time 6 million and the tax revenue is $12M
Well, it sounds like the government really wants to put the fizz in their tax revenue! Let's crunch those numbers, shall we?
Before the tax, 12 million cases of cola were sold at $3.50 per case. So the total revenue from cola sales was 12 million x $3.50 = $42 million.
After the tax, 6 million cases of cola are sold at $4.00 per case. So the total revenue from cola sales is now 6 million x $4.00 = $24 million.
We also know that producers receive $2.00 per case. So their total revenue is 6 million x $2.00 = $12 million.
Now, the government taxes the difference between the old and new revenues, which is $42 million - $24 million = $18 million.
Since the government taxes consumers, we need to find out how much each consumer is paying in tax. With a decrease of 6 million cases of cola, and an increase of $0.50 per case, we can calculate the tax per case: $0.50 x 6 million = $3 million.
So, it seems that the excise tax on cola is $3 million. That's enough to make anyone lose their carbonation!
To determine the excise tax on cola, we need to calculate the difference between the price paid by consumers after the tax and the price received by producers.
Before the tax:
- Quantity of cola sold: 12 million cases
- Price of cola: $3.50 per case
After the tax:
- Quantity of cola sold: 6 million cases
- Price paid by consumers: $4.00 per case
- Price received by producers: $2.00 per case
The excise tax can be calculated as the difference between the price paid by consumers and the price received by producers:
Excise Tax = Price paid by consumers - Price received by producers
Excise Tax = $4.00 - $2.00 = $2.00
Therefore, the excise tax on cola is $2.00 per case.
To determine the excise tax on cola, we need to calculate the difference between the price paid by consumers after the tax and the price received by producers.
Before the tax, the price of cola per case was $3.50, and after the tax, consumers pay $4.00 per case. This means the tax per case is $4.00 - $3.50 = $0.50.
After the tax, producers receive $2.00 per case. To calculate the tax, we need to subtract the price received by producers from the price paid by consumers.
Tax = Price paid by consumers - Price received by producers
= $4.00 - $2.00
= $2.00
Therefore, the excise tax on cola is $2.00 per case.