Answered: The following graph shows the daily…

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

The following graph shows the daily market for wine. Suppose the government institutes a tax of $23.20 per bottle. This places a wedge between the price buyers pay and the price sellers receive.

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
(Bottles of wine)	(Dollars per bottle)	(Dollars per bottle)
Before Tax
After Tax

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	Elasticity
(Dollars per bottle)
Buyers
Sellers

The burden of the tax falls more heavily on the ___ elastic side of the market.

Supply
Tax Wedge
Denand
• 100 200 s00 400 s00 00 0 00 00 1000
QUANTITY (Bottes of wine)

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