ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Transcribed Image Text:9. Effect of a tax on buyers and sellers
The following graph shows the daily market for wine when the tax on sellers is set at $0 per bottle.
Suppose the government institutes a tax of $40.60 per bottle, to be paid by the seller. (Hint: To see the impact of the tax, enter the value of the tax
in the Tax on Sellers field and move the green line to the after-tax equilibrium by adjusting the value in the Quantity field. Then, enter zero in the Tax
on Sellers field. You should see a tax wedge between the price buyers pay and the price sellers receive.)
Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph.
Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly.
200
PRICE (Dollars per bottle)
160
Supply
140
120
100
14
80
Demand
60
40
20
0
10 20 30 40 50 60 70 80 90 100
QUANTITY (Bottles of wine)
180
0
Before Tax
After Tax
Graph Input Tool
Market for Wine
Buyers
Sellers
Quantity
(Bottles of wine)
Tax Burden
(Dollars per bottle) Elasticity
Demand Price
(Dollars per bottle)
10
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
(Bottles of wine) (Dollars per bottle)
Price Sellers Receive
(Dollars per bottle)
132.00
The burden of the tax falls more heavily on the elastic side of the market.
Supply Price
(Dollars per bottle)
Supply Shifter
Tax on Sellers
(Dollars per bottle)
?
Using the data you entered in the previous table, calculate the tax burden that falls on buyers and sellers, respectively, and calculate the price
elasticity of demand and supply throughout the relevant ranges using the midpoint method. Enter your results in the following table.
0.00
0.00
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