Question

7. Effect of a tax on buyers and sellers The following graph shows the daily market for jeans. Suppose the government institutes a tax of $46.40 per pa This places a wedge between the price buyers pay and the price sellers receive. 200 180 160 Supply 140 200 Tax Wedge 000 w 80 60 40 20 Demand 0 50 00 150 200 250 300 350 400 450 500 QUANTITY (Pairs of jeans

Fill in the following table with the quantity sold, the price buyers pay, and the price sellers receive before and after the tax.

	Quantity	Price Buyers Pay	Price Sellers Receive
	(Pairs of jeans)	(Dollars per pair)	(Dollars per pair)
Before Tax
After Tax

Using the data you entered in the previous table, calculate the tax burden that falls on buyers and on sellers, respectively, and calculate the price elasticity of demand and supply over the relevant ranges using the midpoint method. Enter your results in the following table.

	Tax Burden	Elasticity
	(Dollars per pair)
Buyers
Sellers

The burden of the tax falls more heavily on the less/ more elastic side of the market.

Answer 1