ECONOMICS QUESTION CONSUMER/PRODUCER BURDEN The supply of textbooks is: P = 3Q. The demand for textbooks s is: P = –Q + 20. A $4 tax is imposed on the suppliers of textbooks. a.) What is...
ECONOMICS QUESTION CONSUMER/PRODUCER BURDEN
The supply of textbooks is: P = 3Q. The demand for textbooks s is: P = –Q + 20. A $4 tax is imposed on the suppliers of textbooks.
a.) What is the consumers’ tax burden (in dollars)?
b.) What is the producers’ tax burden (in dollars)?
c.) Using a supply and demand graph, show how the $4 tax on apples is split between consumers and producers of textbooks (i.e., label the vertical tax distances that represents consumer burden and producer burden).
When a tax is imposed on a commodity the burden of taxation is not borne solely by one of the parties; nor its it borne equally by the buyer and seller. It is the price elasticity of demand and price elasticity of supply that determines the same.
In the given problem, the supply formula is P=3Q and the demand formula is given by P=-Q+20. $4 is imposed as tax on the suppliers of textbooks. This changes the supply curve to P=3Q+4
The initial market equilibrium is at Q=5 and P=15.
The market equilibrium when taxes are applied is given by 3Q+4=-Q+20 or Q= 4. Substituting this in the initial demand equation gives a price of $16.
The consumer burden of the tax is $1 and the supplier burden of the tax is $3.