3 . Effect of a tax on buyers and sellers

The following graph shows the weekly market for sweatpants in some hypothetical economy. Suppose the government levies a tax of $23.20 per pair. The tax places a wedge between the price buyers pay and the price sellers receive.

01020304050607080901001009080706050403020100PRICE (Dollars per pair)QUANTITY (Pairs of sweatpants)Tax WedgeDemandSupply

Complete the following table by filling in 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 sweatpants)	(Dollars per pair)	(Dollars per pair)
Before Tax
After Tax

Using your answers from 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 tax burden falls more heavily on the side of the market that is elastic.