The following graph shows the weekly market for handbags in some hypothetical economy. Suppose the government levies a tax of $46.40 per bag. The tax places a wedge between the price buyers pay and the price sellers receive. PRICE (Dollars per bag) 200 180 160 140 120 100 80 60 40 20 0 0 Tax Wedge Supply Demand 50 100 150 200 250 300 350 400 450 500 QUANTITY (Bags of handbags) ?
The following graph shows the weekly market for handbags in some hypothetical economy. Suppose the government levies a tax of $46.40 per bag. The tax places a wedge between the price buyers pay and the price sellers receive. PRICE (Dollars per bag) 200 180 160 140 120 100 80 60 40 20 0 0 Tax Wedge Supply Demand 50 100 150 200 250 300 350 400 450 500 QUANTITY (Bags of handbags) ?
Chapter1: Making Economics Decisions
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Transcribed Image Text:The graph illustrates the weekly market for handbags in a hypothetical economy, where a government-imposed tax of $46.40 per bag is applied. This tax introduces a wedge between the price buyers pay and the price sellers receive.
**Graph Explanation:**
- **Axes:**
- The x-axis represents the quantity of handbags, ranging from 0 to 500 bags.
- The y-axis represents the price in dollars per bag, ranging from $0 to $200.
- **Supply and Demand Lines:**
- The **Supply** line is shown in orange, sloping upwards from left to right, indicating that as the price increases, the quantity supplied increases.
- The **Demand** line is shown in blue, sloping downwards from left to right, suggesting that as the price increases, the quantity demanded decreases.
- **Tax Wedge:**
- The tax wedge is marked with two black crosses on the graph. It represents the $46.40 tax, which is the vertical distance between the demand and supply curves at a given quantity.
- The wedge causes a shift where the price buyers pay is higher than the price sellers receive by the amount of the tax.
This visualization demonstrates how taxation can affect market equilibrium, impacting both the price paid by buyers and the revenue received by sellers.
![**Tax Analysis Exercise**
Complete the following table by filling in the quantity sold, the price buyers pay, and the price sellers receive before and after the tax.
| Quantity | Price Buyers Pay | Price Sellers Receive |
|---|---|---|
| **(Bags of handbags)** | **(Dollars per bag)** | **(Dollars per bag)** |
| Before Tax | [ ] | [ ] | [ ] |
| After Tax | [ ] | [ ] | [ ] |
---
Using your answers from 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 bag)** | |
| Buyers | [ ] | [ ] |
| Sellers | [ ] | [ ] |
The tax burden falls more heavily on the side of the market that is [ ] elastic.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fece3d40f-e8f0-464a-aada-c18e494e1994%2Feb9828cc-4329-4d8b-8f36-d27e09eee013%2Fp2qu75jyj_processed.png&w=3840&q=75)
Transcribed Image Text:**Tax Analysis Exercise**
Complete the following table by filling in the quantity sold, the price buyers pay, and the price sellers receive before and after the tax.
| Quantity | Price Buyers Pay | Price Sellers Receive |
|---|---|---|
| **(Bags of handbags)** | **(Dollars per bag)** | **(Dollars per bag)** |
| Before Tax | [ ] | [ ] | [ ] |
| After Tax | [ ] | [ ] | [ ] |
---
Using your answers from 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 bag)** | |
| Buyers | [ ] | [ ] |
| Sellers | [ ] | [ ] |
The tax burden falls more heavily on the side of the market that is [ ] elastic.
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