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 $20.30 per case. The tax places a wedge between the price buyers pay and the price sellers receive. 100 10 BO Demand Supply 70 60 PRICE (Dollars per case) 30 40 8 50 Tax Wedge 20 10 0 0 100 200 300 400 500 600 700 800 QUANTITY (Cases of craft beer) 500 1000 (?) 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 (Cases of craft beer) Price Buyers Pay (Dollars per case) Price Sellers Receive (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 fails more heavily on the side of the market that is elastic.
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 $20.30 per case. The tax places a wedge between the price buyers pay and the price sellers receive. 100 10 BO Demand Supply 70 60 PRICE (Dollars per case) 30 40 8 50 Tax Wedge 20 10 0 0 100 200 300 400 500 600 700 800 QUANTITY (Cases of craft beer) 500 1000 (?) 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 (Cases of craft beer) Price Buyers Pay (Dollars per case) Price Sellers Receive (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 fails more heavily on the side of the market that is elastic.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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