Suppose we instead tax the consumer rather thanthe driver. What happens in new equilibriumcompared to when the driver pays the tax?ABConsumers pay more, cab owners earnmoreConsumers pay more, cab owners earnthe sameConsumers pay the same, cab ownersearn the sameConsumers pay less, cab owners pay thesameFare(per ride)Excise tax-$2 per ride$7.006.005.004.003.00011Supply curveshifts upword by theamount of the tax6d8S₂12S₁1014Quantity of rides (millions per year)

Shifting of tax refers to the transfer of the economic burden or incidence of a tax from the entity…

Answered: Suppose we instead tax the consumer…

Suppose we instead tax the consumer rather than the driver. What happens in new equilibrium compared to when the driver pays the tax? A Consumers pay more, cab owners earn more

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

Suppose we instead tax the consumer rather than
the driver. What happens in new equilibrium
compared to when the driver pays the tax?
A
B
Consumers pay more, cab owners earn
more
Consumers pay more, cab owners earn
the same
Consumers pay the same, cab owners
earn the same
Consumers pay less, cab owners pay the
same
Fare
(per ride)
Excise tax
-$2 per ride
$7.00
6.00
5.00
4.00
3.00
0
11
Supply curve
shifts upword by the
amount of the tax
6
d
8
S₂
12
S₁
10
14
Quantity of rides (millions per year)

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