Questions: Calculating tax incidence Suppose that the local government of Columbus decides to institute a tax on soda producers. Before the tax, 20 million liters of soda were sold every month at a price of 11 per liter. After the tax, 15 million liters of soda are sold every month; consumers pay, 16 per liter, and producers receive 15 per liter (after paying the tax). The amount of the tax on a liter of soda is 1 per liter, Of this amount, the burden that falls on consumers is 5 per liter, and the burden that falls on producers is 1 per liter. 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.

The answer is False.

Explanation:

1. Tax Amount Calculation:

   • Before the tax: 20 million liters sold at $11 per liter.
   • After the tax: 15 million liters sold at $16 per liter (consumers' price) and producers receive $11 per liter (after paying the tax).

   The tax amount per liter is the difference between what consumers pay and what producers receive: \[ \text{Tax amount} = \$16 - \$11 = \$5 \text{ per liter} \]

2. Burden on Consumers and Producers:

   • Consumers pay $16 per liter after the tax, which is $5 more than the original price of $11.
   • Producers receive $11 per liter after the tax, which is the same as the original price before the tax.

   Therefore, the entire tax burden of $5 falls on the consumers.

3. Effect of Tax Incidence:

   • The statement asks whether the effect on the quantity sold would have been the same if the tax had been levied on consumers instead of producers.
   • In economic theory, the incidence of a tax (who bears the burden) does not depend on whether the tax is levied on producers or consumers. The market outcome in terms of quantity sold and price paid by consumers and received by producers would be the same regardless of who is legally responsible for paying the tax.

   However, the statement in the question is about the effect on the quantity sold, which would indeed be the same regardless of whether the tax is levied on producers or consumers.

Given this understanding, the correct answer is:

The answer is True: The effect of the tax on the quantity sold would have been the same as if the tax had been levied on consumers.