Figure 4-8 Price (dollars per case) with lax 27 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
Figure 4-8 Price (dollars per case) with lax 27 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
Chapter7: Market Efficiency And Welfare
Section: Chapter Questions
Problem 8P
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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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