Question

In: Economics

Suppose that a local government levies an excise tax on hotdog sellers. Before the tax, 2.5...

Suppose that a local government levies an excise tax on hotdog sellers. Before the tax, 2.5 million hotdogs were sold at a price of $0.80 per hotdog. With the tax in effect, 1.8 million hotdogs are sold, consumers pay $0.95 per hotdog, and sellers receive $0.50 per hotdog.

In the scenario above, what is the amount of the tax per hotdog?

In the scenario above, what percentage of the tax is paid by buyers?

Solutions

Expert Solution

In the scenario above, what is the amount of the tax per hotdog?

tax per hotdog =after tax price paid by buyer - after-tax price received by the seller

=0.95-0.5

=$0.45

In the scenario above, what percentage of the tax is paid by buyers?

tax amount paid by buyer =new price buyer pay -old price

=0.95-0.8

=0.15

% of tax burden =(tax on buyer /tax per unit)

=(0.15/0.45)*100

=33.33%

Rahul Sunny answered 2 years ago
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