07 Jul THE BURDEN OF THE TAX FALLS MORE HEAVILY ON THE (LESS MORE) ELASTIC SIDE OF THE MARKET.
The following graph shows the daily market for jeans when the tax on sellers is set at $0 per pair. Show more 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 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. 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 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. Tax Burden Elasticity (Dollars per pair) Elasticity Buyers ( ) ( 0.92/2.56/2.18/0.46 ) Sellers ( ) ( 1.28/0.46/2.56/0.39 ) The burden of the tax falls more heavily on the (less more) elastic side of the market. Show less
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