Suppose that the government decides to charge cola consumers an excise tax. Before the tax, the market is in equilibrium, where 12 million cases of cola are sold every month at a price of $3.50 per case. After the tax, 6 million cases of cola are sold every month; consumers pay $4.00 per case and producers receive $2.00 per case. Using this information, what is the excise tax on cola?

Answer 1

consumers pay $4, producers get $2, ergo the tax is $2 per case. time 6 million and the tax revenue is $12M