Question

Suppose buyers of fountain drinks are required to send $0.50 to the government for every fountain drink they buy. Further, suppose this tax causes the effective price received by sellers of fountain drinks to fall by $0.20 per drink. Which of the following statements is correct:

Answer 1

Answer:

ALL OF THE ABOVE

Explanation:

If buyers of fountain drinks are required to send $0.50 to the government for every fountain drink they buy and suppose this tax causes the effective price received by sellers of fountain drinks to fall by $0.20 per drink.

Therefore

1. The tax will cause the demand curve to shift downward by $0.5 because consumers will buy less at a technically higher price.

2. It also means that the price per drink will be $0.3 more than than the price before the tax because they have to pay an extra $0.5 tax less $0.2 that nets off the effective price of the drink

3. It also means that 40% of the tax burden falls on the suppliers because $0.2 is 40% 0.5%, and the $0.2 reducing the effective price means that the suppliers are receiving a 40% portion of the total tax burden of $0.5