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3 . Effect of a tax on buyers and sellers The following graph shows the weekly market for handbags in some hypothetical economy. Suppose the

3 . Effect of a tax on buyers and sellers

The following graph shows the weekly market for handbags in some hypothetical economy. Suppose the government levies a tax of $46.40 per bag. The tax places a wedge between the price buyers pay and the price sellers receive.

image text in transcribed
PRICE (Dollars per bag) 200 180 160 140 120 100 80 60 4D 20 50 Tax Wedge SUPP')' Demand 100 150 200 250 300 350 QUANTITY (Bags of handbags) 400 450 500

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