Question

Suppose sellers of liquor are required to send $5.00 to the government for every bottle of liquor they sell. Further, suppose this tax causes the price paid by buyers of liquor to rise by $3.00 per bottle. Which of the following statements is correct?

a. The effective price received by sellers is $5.00 per bottle less than it was before the tax.b. Forty percent of the burden of the tax falls on buyers.c. This tax causes the supply curve for liquor to shift upward by $5.00 at each quantity of liquor.d. All of the above are correct

Answer 1

Answer:

c. This tax causes the supply curve for liquor to shift upward by $5.00 at each quantity of liquor

Explanation:

Before the taxes maybe, there was a supplier willing to offer 1 dollar or 3 dollar per liquor, as now it is forced to give 5 to the government it will increase the price by $5 then to go back to the normal scenario before taxation.

The fact that the price only rise $3 instead of $5 represent the demand adjusting and decreasing to a lower level.