Two small California cities, Richmond and El Monte, are planning to impose a penny per ounce tax on sugary drinks. They are being opposed by the soda industry that is vehemently against this new legislation. (Source: Reuters, September 6, 2012)
-Assuming the market of soda has a regular downward sloping demand curve and upward sloping supply curve, the tax will ________ the price paid by buyers and ________ the price received by sellers.

Question

Quizplus · Accepted Answer

The tax will increase the price paid by buyers because part of the tax burden is passed on to consumers. It will decrease the price received by sellers because they have to pay part of the tax, reducing their net revenue.

Two Small California Cities, Richmond and El Monte, Are Planning