Figure 6-20
-Refer to Figure 6-20.Suppose a tax of $5 per unit is imposed on this market.Which of the following is correct?

Question

Figure 6-20 
-Refer to Figure 6-20.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 the market, the supply curve shifts upward by the amount of the tax, resulting in a new equilibrium price and quantity. In this case, the new equilibrium price is $29 and the new equilibrium quantity is 8 units. Buyers now pay a price of $29 per unit, which is higher than the original price of $25 per unit, while sellers receive a price of $20 per unit, which is lower than the original price. As a result, sellers will bear more of the burden of the tax than buyers will. This can be seen by comparing the difference between the original and new equilibrium price for buyers ($4) to the difference for sellers ($5). Therefore, the correct answer is C.

Figure 6-20 -Refer to Figure 6-20.Suppose a Tax of $5 Per Unit