Question

The graph shows the supply curve of no-name soda. The government has imposed a sales tax of $2 per case on no-name soda. Price (dollars per case) The sellers of no-name soda end up paying the entire tax. @ O3 Draw and label the demand curve for no-name soda. The more the demand, O A. inelastic; the larger is the amount of the tax paid by sellers O B. elastic; the larger is the amount of the tax paid by sellers O c. elastic; the more equally is the tax split between buyers and sellers OD. inelastic; the more equally is the tax split between buyers and sellers ó 12 2 4 6 8 10 Quantity (millions of cases per year) >>> Draw only the objects specified in the question.

Answer 1

Demand is more elastic than supply Demand is less elastic than supply Price Price 1 2 4 8 8 10 12 4 6 Quantity 8 10 12 - 6 Quantity

The dashed supply curve is due to the levy of $2 tax. Consider the two scenarios as shown

(1) Case 1: The first diagram shows a case where demand is more elastic than the supply. Here, the tax burden is more for the seller (green shaded area) as compared to the tax burden on buyer (grey shaded area).

(2) Case 2: As shown in the second diagram, supply curve is more elastic than the demand curve where the burden of tax on buyer (grey shaded area) is more than that on the seller (green shaded area)

Hence, the correct option is: B) The more elastic the demand, the larger is the amount of the tax paid by the seller.