7. Effect of a tax on buyers and sellers The following graph shows the daily market...

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Answer 1

Answer #1

Q 500 420 BUYER PRICE SELLER PRICE before tax after tax TAX BURDEN dTxQafter tax 100 105.2 2184 4.62 100 64.6 14868

the burden of the tax falls more heavily on the inelastic side of the market. i.e. sellers here.

Before tax price, and quantity is determined from the equality of demand and supply curve.

Price elasticity of demand = Change in quantity demanded x original price/ change in price x original quantity

Price elasticity of supply = Change in quantity supplied x original price/ change in price x original quantity

Answer 2

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