Question 7

7. Effect of a tax on buyers and sellers The following graph shows the weekly market for craft beer in some hypothetical economy. Suppose the government levies a tax of $11.60 per case. The tax places a wedge between the price buyers pay and the price sellers receive. (?) 50 40 Supply 15 30 Tax Wedge 25 PRICE (Dollars per case) 15 10 Demand 10 20 30 40 50 60 70 80 90 100 QUANTITY (Cases of craft beer)Complete the following table by filling in the quantity sold, the price buyers pay, and the price sellers receive before and after the tax. Quantity Price Buyers Pay Price Sellers Receive (Cases of craft beer) (Dollars per case) (Dollars per case) Before Tax After Tax Using your answers from the previous table, calculate the tax burden that falls on buyers and on sellers, respectively, and calculate the price elasticity of demand and supply over the relevant ranges using the midpoint method. Enter your results in the following table. Tax Burden (Dollars per case) Elasticity Buyers Sellers The tax burden falls more heavily on the side of the market that is elastic.4. Minimum wage legislation The following graph gives the labor market for the fast-food industry of the imaginary city of Combopolis. Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph. Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly. Graph Input Tool ? 20 Market for Labor in the Fast Food Industry Wage 6 Supply (Dollars per hour) G Labor Demanded 174 Labor Supplied 126 14 (Hundreds of (Hundreds of workers) workers) WAGE (Dollars per hour) Demand 0 30 60 90 120 150 120 210 240 270 300 LABOR (Hundreds of workers)In this market, the equilibrium wage is |$ per hour, and the equilibrium quantity of labor is hundred workers. Suppose the mayor of Combopolis introduces a legal minimum wage of $6 per hour. This type of price control is called a For each of the wages listed in the following table, determine the quantity of labor demanded, the quantity of labor supplied, and the direction of pressure exerted on wages in the absence of any price controls. Wage Labor Demanded Labor Supplied (Dollars per hour) (Hundreds of workers) (Hundreds of workers) Pressure on Wages 12 True or False: A minimum wage below $10 per hour is not a binding minimum wage in this labor market. O True O False5. Calculating tax incidence Suppose that the local government of Jacksonville decides to institute a tax on soda consumers. Before the tax, 25 billion liters of soda were sold every year at a price of $10 per liter, After the tax, 20 billion liters of soda are sold every year; consumers pay $15 per liter (including the tax), and producers receive $7 per liter. The amount of the tax on a liter of soda is |S per liter. Of this amount, the burden that falls on consumers is S per liter, and the burden that falls on producers is $ per liter. True or False: The effect of the tax on the quantity sold would have been larger if the tax had been levied on producers. O True O False