7. Effect of a tax on buyers and sellersThe following graph shows the daily market for shoes. Suppose the government institutes a tax of $11.60 per pair. This places a wedge between the price buyers pay and the price sellers receive. Using the data you entered in the previous table, calculate the tax burden that falls on buyers and on sellers, respectively, and calculate the priceelasticity of demand and supply over the relevant ranges using the midpoint method. Enter your results in the following table.Tax Burden(Dollars per pair)ElasticityBuyersSellersThe burden of the tax falls more heavily on theelastic side of the market. 504540Supply35Tax Wedge10Demand102030405060708090100QUANTITY (Pairs of shoes)Fill in the following table with the quantity sold, the price buyers pay, and the price sellers receive before and after the tax.QuantityPrice Buyers PayPrice Sellers Receive(Pairs of shoes) (Dollars per pair)(Dollars per pair)Before TaxAfterТаxPRICE (Dollars per pair)

Answered: Effect of a tax on buyers and sellers…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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7. Effect of a tax on buyers and sellers

The following graph shows the daily market for shoes. Suppose the government institutes a tax of $11.60 per pair. This places a wedge between the price buyers pay and the price sellers receive.

Using the data you entered in 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
The burden of the tax falls more heavily on the
elastic side of the market.

50
45
40
Supply
35
Tax Wedge
10
Demand
10
20
30
40
50
60
70
80
90
100
QUANTITY (Pairs of shoes)
Fill in the following table with 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 shoes) (Dollars per pair)
(Dollars per pair)
Before Tax
After
Таx
PRICE (Dollars per pair)

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Taxes are an important government policy instrument that is used to collect revenue from the public in order to incur public expenditures. It refers to the compulsory payments that are imposed on the buyers and the sellers by the government.

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