The table gives the demand and supply for 20 oz bottled soda Price QD(millions p

Question

The table gives the demand and supply for 20 oz bottled soda

Price                 QD(millions per week)                QS( millions per week)
.90                       5                                                 3
1.00                     4                                                 4
1.10                     3                                                 5
1.20                     2                                                 6
1.30                     1                                                 7

a. If sodas are not taxed, what is the price of a soda and how many are bought?

b. If sellers are taxed 10 cents a soda, what is the price and quantity bought? Who pays the tax?

c. If the buyers are taxed 10 cents a soda, what is the price and quantity bought?

Explanation / Answer

a) No tax means prices will not be affected and remain as given in the table. For equilibrium, Qd = Qs This happens at Qd = 4 m/week = Qs P = 1.00 at this level and Qd = 4 m /week (ANSWER) b) When sellers are taxed, they pass it to the consumers. New price = 1.10 and Qd = 3 m/week (ANSWER) c) If buyers are taxed, it will affect Qd corresponding to the price after tax but seller's price remain unchanged. So, P = 1.00 and Qd = 3 m/week (ANSWER)

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