Figure 6-15
-Refer to Figure 6-15.Suppose a tax of $5 per unit is imposed on this market.Which of the following is correct?

Question

Figure 6-15 
-Refer to Figure 6-15.Suppose a tax of $5 per unit is imposed on this market.Which of the following is correct?

Quizplus · Accepted Answer

When a tax is imposed on a market, the price paid by buyers will increase and the price received by sellers will decrease. In this case, the price paid by buyers will increase from $20 to $25 ($20 + $5 tax), and the price received by sellers will decrease from $20 to $15 ($20 - $5 tax). Since buyers are facing a higher price and sellers are receiving a lower price, it is likely that sellers will be able to pass on some of the burden of the tax to buyers, but buyers will still bear more of the burden. Therefore, option B is incorrect. Option A is also incorrect because it assumes that both buyers and sellers have equal bargaining power, which is not necessarily true. Option D is incorrect because it presents all options as equally likely, which is not the case here. Hence, the correct answer is C.

Figure 6-15 -Refer to Figure 6-15.Suppose a Tax of $5 Per Unit