Question

7. Effect of a tax on buyers and sellers The following graph shows the daily market for shces. Suppose the govenment institutes a tax of $11.60 per pair. This places a wedge between the price buyers pay and the price sellers receive. Supply Tax Wedge Demand 50100150200觊300 30 400 450 QUANTITY (Pairs of shoes) FI in the oowing tabie with the quantity sold, the price buyers pay, and the price sellers receive before and after the tax. Quantity (Pairs of shoes) Price Buyers Pay (Dollars per pair) Price Sellers Receive (Dollars per pair) Before Tax After Tax Using the data you entered in the previous table, calculate the tax burden that fails an buyers and on sellers, respectively, and caiculate the price elasticity of demand and supply over the relevant ranges using the mvalpoint method. Enter your resuts in the foflowing table. Tax Burden (Dollars per pair) Elasticity Buyers Sellers The burden of the tax falls more heavily on the elastic side of the market.

Answer 1

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