Suppose sellers of liquor are required to send $1.00 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 $0.60 per bottle.Which of the following statements is correct?

Question

Quizplus · Accepted Answer

The tax is paid by the sellers, so they receive $1.00 less per bottle. However, buyers pay $0.60 more per bottle, so the effective price received by sellers is decreased by $0.40 per bottle.

B) is incorrect because the burden of the tax falls on the buyers since they are the ones paying more for the product.

C) is incorrect because the demand curve does not shift downward by $1.00 at each quantity of liquor. The tax may affect demand, but the extent of the effect depends on other factors such as consumer preferences and substitutes.

Suppose Sellers of Liquor Are Required to Send $1