Question

Question 4-(Chapter 6)- Government Policies: Using the graph shown, answer the following questions: a. What was the equilibrium price in this market before the tax? b. What is the amount of the tax? c. How much of the tax will the buyers pay? d. How much of the tax wil the sellers pay? e. How much will the buyer pay for the product after the tax is imposed? f. How much will the seller receive after the tax is imposed? g. As a result of the tax, what has happened to the level of market activity? price 10 10 20 30 40 50典7980 frantity

Answer 1

From graph

1) Equillibrium price in the market before tax

P = 6

2) Amount of tax = Change in Demand (D - D after tax )

Amount of tax = (4-1) = 3

3)Buyers pay the equilibrium price before the tax is imposed.So they will pay the price 6

Tax amount that buyer paid is 3

4) The seller pay the tax amount of 3 RS which is received from buyer. So the money he is oaypay from his pocket is zero.

5) The buyer will pay = New equillibrium price + tax amount

Buyer = 3+3 = 6

6) Seller will receive only the new equillibrium price amount

Seller = 3

7) As result of taxation the demand for the product has been decreased which lead to fall in both equillibrium price and quantity of product.