Assume a per unit tax is levied on gasoline in the amount of $3.00. Also assume...

Assume a per unit tax is levied on gasoline in the amount of $3.00. Also assume that the burden of that tax on buyers is $2.00 while the burden of the tax on firms is $1.00. Graph and label the following details surrounding the per unit tax. Use the coordinate space provided in Figure 5. a. (1 point) The price buyers pay. Use the label PB. b. (1 point) The price suppliers receive. Use the label PS. c. (1 point) Draw and label the size of the Tax. Use label T. d. (1 point) Draw and label the Tax Revenue. Use label TR. e. (1 point) Draw and label the overall Deadweight Loss. Use label DWL.

Solutions

Expert Solution

Ans) When government imposes tax, burden is shared by both buyers and sellers. Now who will bear greater burden of tax depends upon the elasticity of demand and supply. Accordingly, less elastic side of the market bears greater burden of tax.

Here we see that buyers are bearing more burden of tax. Therefore, demand is less elastic.

Rahul Sunny answered 1 year ago

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