In each of the following cases involving taxes, explain:
(i) Whether the incidence of the tax falls more heavily on consumers or producers.
(ii) Why government revenue raised from the tax is not a good indicator of the true cost of the tax.
(iii) How deadweight loss arises as a result of the tax.
a. The government imposes an excise tax on the sale of all college textbooks. Before the tax was imposed, 1 million textbooks were sold every year at a price of $50.
After the tax is imposed, 600,000 books are sold yearly; students pay $55 per book, $30 of which publishers receive.
b. The government imposes an excise tax on the sale of all airline tickets. Before the tax was imposed, 3 million airline tickets were sold every year at a price of $500.
After the tax is imposed, 1.5 million tickets are sold yearly; travelers pay $550 per ticket, $450 of which the airlines receive.
c. The government imposes an excise tax on the sale of all toothbrushes. Before the tax, 2 million toothbrushes were sold every year at a price of $1.50. After the tax is imposed, 800,000 toothbrushes are sold every year; consumers pay $2 per toothbrush, $1.25 of which producers receive.