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Figure: The Market for Melons in Russia II
-Suppose that the government imposes a $10 excise tax on the sale of sweaters by charging suppliers $10 for each sweater sold.If the demand curve is downward-sloping and the supply curve is upward-sloping:

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Use the following to answer questions :
Figure: The Market for Melons in Russia II 
-Suppose that the government imposes a $10 excise tax on the sale of sweaters by charging suppliers $10 for each sweater sold.If the demand curve is downward-sloping and the supply curve is upward-sloping:

Quizplus · Accepted Answer

The imposition of the excise tax will increase the cost of production for suppliers by $10 per sweater. As a result, the supply curve will shift upward by the amount of the tax, resulting in a new equilibrium where the price of sweaters is higher than before. However, the extent of the increase in price will be less than $10 because some of the tax burden will be passed on to consumers in the form of higher prices. The size of the price increase will depend on the relative elasticities of demand and supply. If demand is relatively inelastic and supply is relatively elastic, then consumers will bear most of the tax burden and the increase in price will be relatively small. Conversely, if demand is relatively elastic and supply is relatively inelastic, then suppliers will bear most of the tax burden and the increase in price will be relatively large.

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