Question

Price D 6 8 Quantity 8. Refer to the above graph. Assume the market for this product is in equilibrium at the intersection of D2 and S. The shift in supply from S to Sz is due to an excise tax imposed on the product. The incidence of the tax is: $1 from the buyers and $3 from the sellers $3 from the buyers and $3 from the sellers $1 from the buyers and $1 from the sellers $4 from the buyers and So from the sellers

Answer 1

8. Ans: $1 from the buyers and $3 from the Sellers.

Explanation:

Before imposition of tax, the equilibrium price was $9. After imposition of tax, the new equilibrium price is $10. The buyer pays $10 and the seller receives $6. The incidence of tax on buyer is $10 - $9 = $1 and incidence on seller is $9 - $6 = $3.

9. Ans: B and C

Explanation:

The entire tax burden will borne by the consumers, when demand curve is perfectly inelastic or when the supply curve is perfectly elastic.

Thus, in graph B, demand curve is perfectly inelastic and in graph C, supply curve is perfectly elastic.

10. Ans: B and D.

Explanation:

In graph B and D, there is no deadweight loss.