Question
3 . Effect of a tax on buyers and sellers The following graph shows the daily market for jeans. Suppose the government institutes a tax
3 . Effect of a tax on buyers and sellers
The following graph shows the daily market for jeans. Suppose the government institutes a tax of $23.20 per pair. This places a wedge between the price buyers pay and the price sellers receive.
010020030040050060070080090010001009080706050403020100PRICE (Dollars per pair)QUANTITY (Pairs of jeans)Tax WedgeDemandSupply
Fill in the following table with the quantity sold, the price buyers pay, and the price sellers receive before and after the tax.
| Quantity | Price Buyers Pay | Price Sellers Receive | |
|---|---|---|---|
| (Pairs of jeans) | (Dollars per pair) | (Dollars per pair) | |
| Before Tax | |||
| After Tax |
Using the data you entered in the previous table, calculate the tax burden that falls on buyers and on sellers, respectively, and calculate the price elasticity of demand and supply over the relevant ranges using the midpoint method. Enter your results in the following table.
| Tax Burden | Elasticity | |
|---|---|---|
| (Dollars per pair) | ||
| Buyers | ||
| Sellers |
The burden of the tax falls more heavily on the elastic side of the market.
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Statistics For Engineers And Scientists
Authors: William Navidi
3rd Edition
9780073376332
