9. Effect of a tax on buyers and sellers The following graph shows the daily mar

Question

9. Effect of a tax on buyers and sellers The following graph shows the daily market for jeans when the tax on sellers is set at $0 per pair Suppose the government institutes a tax of $5.80 per pair, to be paid by the seller. (Hint: To see the impact of the tax, first enter the value of the tax in the Tax on Sellers field. Then move the green line to the after-tax equilibrium-so that quantity demanded equals quantity supplied-by adjusting the value in the Price field.) 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 Graph Input Tool Market for Jeans 50 Price (Dollars per pair) 45 $25 40 Supply Quantit Demanded 250.00Quantity Supplied 250.00 (pairs of jeans) (pairs of jeans) 30 25 20 15 Supply Shifter Tax on Sellers (Dollars per pair) and 0.00 0 50 100 150 200 250 300 350 400 450 500 QUANTITY (Pairs of jeans)

Explanation / Answer

Quantity Equilibrium price (dollars per pair) (Pairs of shoes) Before tax 250 $25 After tax 225 $30 After imposition of tax, the new equilibrium will be 225 pairs of shoes and price per pair that the buyer will pay is $30.00 and sellers will receive $24.20 per pair. You can find this by reading the graph on the X and Y axis. The tax is $30.00-$24.20 which is $5.80 per pair. The tax burden of sellers is $0.80

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