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The following graph shows the weekly market for sweatpants in some hypothetical economy. Suppose the government levies a tax of $11.60 per pair. The
The following graph shows the weekly market for sweatpants in some hypothetical economy. Suppose the government levies a tax of $11.60 per pair. The tax places a wedge between the price buyers pay and the price sellers receive. PRICE (Dollars per pair) 50 45 40 35 30 25 20 15 10 5 Tax Wedge Supply Demand 0 + + 0 10 201 30 40 50 60 70 80 90 100 QUANTITY (Pairs of sweatpants) ? 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 (Pairs of sweatpants) Price Buyers Pay (Dollars per pair) Price Sellers Receive (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 (Dollars per pair) Elasticity Buyers Sellers less more The tax burden falls more heavily on the side of the market that is elastic.
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