12. Effect of a tax on buyers and sellers The following graph shows the daily market for wine when the tax on sellers is set at $0 per bottle. Suppose the government institutes a tax of $20.30 per bottle, to be paid by the seller. (Hint: To see the impact of the tax, enter the value of the tax in the Tax on Sellers field and move the green line to the after-tax equilibrium by adjusting the value in the Quantity field. Then enter zero in the Tax on Sellers field. You should see a tax wedge between the price buyers pay and the price sellers receive.) 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. PRICE (Dollars per bottle) 100 50 Supply Demand 10 0 0 10 20 30 40 50 60 70 80 90 100 QUANTITY (Bottles of wine) Graph Input Tool Market for Wine Quantity 10 (Bottles of wine) Demand Price (Dollars per bottle) 66.00 Supply Price (Dollars per bottle) 0.00 Supply Shifter Tax on Sellers (Dollars per bottle) 0.00 Fill in the following table with the quantity sold, the price buyers pay, and the price sellers receive before and after the tax. Quantity (Bottles of wine) Price Buyers Pay (Dollars per bottle) Price Sellers Receive (Dollars per bottle) Before Tax After Tax Using the data you entered in the previous table, calculate the tax burden that falls on buyers and 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 bottle) Elasticity Buyers Sellers The burden of the tax falls more heavily on the elastic side of the market.
12. Effect of a tax on buyers and sellers The following graph shows the daily market for wine when the tax on sellers is set at $0 per bottle. Suppose the government institutes a tax of $20.30 per bottle, to be paid by the seller. (Hint: To see the impact of the tax, enter the value of the tax in the Tax on Sellers field and move the green line to the after-tax equilibrium by adjusting the value in the Quantity field. Then enter zero in the Tax on Sellers field. You should see a tax wedge between the price buyers pay and the price sellers receive.) 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. PRICE (Dollars per bottle) 100 50 Supply Demand 10 0 0 10 20 30 40 50 60 70 80 90 100 QUANTITY (Bottles of wine) Graph Input Tool Market for Wine Quantity 10 (Bottles of wine) Demand Price (Dollars per bottle) 66.00 Supply Price (Dollars per bottle) 0.00 Supply Shifter Tax on Sellers (Dollars per bottle) 0.00 Fill in the following table with the quantity sold, the price buyers pay, and the price sellers receive before and after the tax. Quantity (Bottles of wine) Price Buyers Pay (Dollars per bottle) Price Sellers Receive (Dollars per bottle) Before Tax After Tax Using the data you entered in the previous table, calculate the tax burden that falls on buyers and 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 bottle) Elasticity Buyers Sellers The burden of the tax falls more heavily on the elastic side of the market.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:12. Effect of a tax on buyers and sellers
The following graph shows the daily market for wine when the tax on sellers is set at $0 per bottle.
Suppose the government institutes a tax of $20.30 per bottle, to be paid by the seller. (Hint: To see the impact of the tax, enter the value of the tax
in the Tax on Sellers field and move the green line to the after-tax equilibrium by adjusting the value in the Quantity field. Then enter zero in the Tax
on Sellers field. You should see a tax wedge between the price buyers pay and the price sellers receive.)
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.
PRICE (Dollars per bottle)
100
50
Supply
Demand
10
0
0
10 20 30 40 50 60 70 80 90 100
QUANTITY (Bottles of wine)
Graph Input Tool
Market for Wine
Quantity
10
(Bottles of wine)
Demand Price
(Dollars per bottle)
66.00
Supply Price
(Dollars per bottle)
0.00
Supply Shifter
Tax on Sellers
(Dollars per bottle)
0.00
Fill in the following table with the quantity sold, the price buyers pay, and the price sellers receive before and after the tax.
Quantity
(Bottles of wine)
Price Buyers Pay
(Dollars per bottle)
Price Sellers Receive
(Dollars per bottle)
Before Tax
After Tax
Using the data you entered in the previous table, calculate the tax burden that falls on buyers and 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 bottle) Elasticity
Buyers
Sellers
The burden of the tax falls more heavily on the
elastic side of the market.
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