Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

1.The legal incidence of a tax has no effect on the economic incidence of a tax. When a tax's legal incidence is assigned to buyers,

1.The legal incidence of a tax has no effect on the economic incidence of a tax. When a tax's legal incidence is assigned to buyers, buyers are required to pay the tax by writing a check to the government.

a.Consider the case of a $5 excise tax where the legal incidence falls on buyers (i.e., buyers are legally required to pay the tax). What is the effect of this tax on the market supply curve? What is the effect of this tax on the market demand curve? Illustrate and explain the effect(s).

b.Consider the case of a $5 excise tax where the legal incidence falls on sellers (i.e., sellers are legally required to pay the tax). What is the effect of this tax on the market supply curve? What is the effect of this tax on the market demand curve? Illustrate and explain the effect(s).

c.What is the effect of the $5 excise tax on the total price (price plus the $5 excise tax) buyers pay in this market when the tax's legal incidence is imposed on buyers? Illustrate and explain the effect

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

More Books

Students also viewed these Economics questions