Figure 4-8Price(dollarsper case)Supplywith lax$32Keddng22Tax-20Quantity(thousandsof cases)Figure 4-8 shows the market for beer. The government plans to impose a unit tax in this market.Refer to Figure 4-8. How much of the tax is paid by buyers?$2$5$7$12

Answered: Figure 4-8 Price (dollars per case)…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Figure 4-8
Price
(dollars
per case)
Supply
with lax
$32
Keddng
22
Tax-
20
Quantity
(thousands
of cases)
Figure 4-8 shows the market for beer. The government plans to impose a unit tax in this market.
Refer to Figure 4-8. How much of the tax is paid by buyers?
$2
$5
$7
$12

Expert Solution

Step 1

Answer:

Correct option: $5

Explanation:

Initially, the equilibrium in the market for beer is in equilibrium where the price is $22. At this price, the buyer pays $22 and the seller also receives $22. But after the tax, the new equilibrium is at the point where the supply curve with tax and the demand curve intersect each other. At this point, the price is $27. It means the buyer pays $27. And at this point, the seller receives $20 only (see the corresponding price at the old supply curve).

At the new price, the buyer is paying $5 extra (27-22=5) than before. So it is the tax amount that the buyer pays to the seller.

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