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The following graph shows the daily market for jeans. Suppose the government institutes a tax of $11.60 per pair. This places a wedge between the...
The following graph shows the daily market for jeans. Suppose the government institutes a tax of $11.60 per pair. This places a wedge between the price buyers pay and the price sellers receive.
05010015020025030035040045050050454035302520151050PRICE (Dollars per pair)QUANTITY (Pairs of jeans)Tax WedgeDemandSupply
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 TaxAfter Tax
Using the data you entered in the previous table, calculate the tax burden that falls on buyers and on sellers, respectively, and calculate the price elasticity of demand and supply over the relevant ranges using the midpoint method. Enter your results in the following table.
Tax Burden
Elasticity
(Dollars per pair)
Buyers Sellers
The burden of the tax falls more heavily on the elastic side of the market.
