If the government imposes a $15 tax on cheap wine, and the price of cheap wine increases by $12:
A)the government will receive less tax revenue than anticipated.
B)consumers are paying more of the tax than producers are.
C)producers are paying more of the tax than consumers are.
D)the quantity of cheap wine sold will increase.

Question

Quizplus · Accepted Answer

If the price of cheap wine increases by $12 in response to a $15 tax, it is likely that consumers are paying a significant portion of the tax. This means that producers are not bearing the entire burden of the tax, so choice C is not correct. It is possible that the government will receive less tax revenue than anticipated if the increase in price causes a decrease in the quantity of wine sold, but this is not explicitly stated in the question, so choice A cannot be confirmed. The increase in price may also lead to a decrease in quantity demanded (Law of Demand), so it is unlikely that the quantity of cheap wine sold will increase, making choice D incorrect.

If the Government Imposes a $15 Tax on Cheap Wine