Question

Refer to Figure 6-26. The effective price received by sellers after the tax is imposed is 

a. $8 

b. $16 

c. $14 

d. $12

Answer 1

With an imposition of tax, the quantity demanded or the quantity supplied decreases due to a decrease in demand or decrease in supply. In this case, the demand decreases, thus, equilibrium quantity reduces. Also, the price paid by buyers is higher thaan before, while the price received by sellers is lesser than before. The difference in the two prices is the tax amount, which is collected by the government. Here, in the diagram, the Price paid by the buyers is $16, as we see in the graph, but the price receiver by sellers is $8.

Therefore, the effective price received by sellers after the tax is imposed is $8.