Suppose a $5 tax is imposed on sellers in the market shown in the graph. Which of the following statements is true?Producers bear more of the tax burden than consumers.The tax-inclusive price (or after-tax price) received by sellers is $8.The deadweight loss is $15,000.

Question

Quizplus · Accepted Answer

I) True - When a tax is imposed on sellers, the supply curve shifts upward by the amount of the tax, causing the equilibrium quantity to decrease and the equilibrium price paid by buyers to increase. As a result, producers receive a lower price than before the tax was imposed, and hence bear a portion of the tax burden.

II) True - With a tax of $5 imposed on sellers, the price received by sellers will be the original equilibrium price of $10 minus the amount of the tax, or $5. Therefore, the tax-inclusive price received by sellers is $8 ($5 tax plus $3 original price).

III) Not necessarily true - The deadweight loss resulting from the tax cannot be determined solely from the graph shown. To calculate the deadweight loss, we need to know the elasticities of demand and supply.

Suppose a $5 Tax Is Imposed on Sellers in the Market