Question

Draw supply and demand curves using the following prices (on y axis) and quantity (on x axis) using the following values: Price $8 $7 $6 $5 $4 $2 $1 Quantity Demanded Quantity Supplied 2 4 5 6 8 10 7 6 4 Show this point on the graph. Identify the Equilibrium Price and quantity Assume a 10% sales tax is levied on all consumption, complete the following table: Income $10,000 $20,000 $40,000 $80,000 Consumption $11,000 $20,000 $36,000 $60,000 Sales Tax % of Income Paid in Taxes

Answer 1

The graph is drawn below

Market equilibrium price is $4

Market equilibrium quantity is 6 units

Demand and supply 9 00 Price M N O 0 1 2 3 4 6 7 8 9 10 5 Quantity Demand Supply

Here we find the amount of sales tax as a % of consumption in the third column and the % of income paid in tax in fourth column

Sales tax for consumption of 60000 = 10%*60000 = 6000

% of income paid in taxes of 6000 = 6000/80000 = 7.50%

Income	Consumption	Sales tax	% of income paid as taxes
10000	11000	1100	11.00
20000	20000	2000	10.00
40000	36000	3600	9.00
80000	60000	6000	7.50