Question

QUESTION #1 

Refer to Figure 1. Suppose a $3 per-unit tax is imposed on the sellers of this good. How much is the burden of this tax on the buyers in this market? What price will buyers pay for the good after the tax is imposed? Explain clearly.

QUESTION #2 

Refer to Figure 1. Suppose a $3 per-unit tax is imposed on the sellers of this good. How much is the burden of this tax on the sellers in this market? What is the effective price that sellers will receive for the good after the tax is imposed? Explain clearly.

Answer 1

1) When the tax is imposed the supply curve will shift leftward by $3. So new supply curve S1 is shown in the diagram.

At new equilibrium where demand = new supply is at price $12, before the tax, consumers pay $10

So the tax burden on buyers = 12- 10 = $2.

2) Effective price sellers receive after tax is imposed = $9

before the tax is imposed sellers receive $10,

SO TAX BURDEN ON SELLERS = 10-9 = $1

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