Question

Given: Stuff initially (without tax) sells for $60/unit, and 500 units/month are sold. A tax T = $4/unit on Stuff causes its market price to rise by 5% and quantity bought & sold drops by 10%. Please type your properly-numbered answers in box below 1) How much of the tax T is shouldered by the buyers, in $/unit? Show how you got this. 2) How much of the tax T is shouldered by the sellers, in $/unit? Show how you got this. 3) How much tax revenues would government receive, from the tax on Stuff?

Answer 1

Ai= tax Wedge - pran B A supply E= Equilibrium (Before tax y Dewand 658 FEMA 450 500 Q Tax Buyer Boys = Distance of BE = $(63 - GO) = $3 Hence Buyer pays = $3/ unit # Tax Seller pays = Distance of AFF = $160 - 58) = $2. Tax selles pays = 42 unil # Tax Revenue = Area of triangle (on thx x Quanhly sold ABCG . tength x Breadth = AGX AB Tax Rurnine = $2250 = 450 45 22.50

Inelastic demand will be Marge because the Quaunty demand will not affect by the price. It is a case of perfect in elastic which is dependent of price o Marge Buys 15 Gallons of car whatever will be Price of Gani