Reference: Ref 6-4 (Figure: Tax on Supply and Demand) According to the figure, if the tax is placed on buyers, the equilibrium is at Point:
A) B, and the equilibrium price and quantity are P3 and Q2.
B) C, and the equilibrium price and quantity are P3 and Q2.
C) C, and the equilibrium price and quantity are P1 and Q2.
D) D, and the equilibrium price and quantity are P2 and Q1.

Question

Reference: Ref 6-4 (Figure: Tax on Supply and Demand) According to the figure, if the tax is placed on buyers, the equilibrium is at Point:
A) B, and the equilibrium price and quantity are P3 and Q2. 
B) C, and the equilibrium price and quantity are P3 and Q2. 
C) C, and the equilibrium price and quantity are P1 and Q2. 
D) D, and the equilibrium price and quantity are P2 and Q1.

Quizplus · Accepted Answer

When the tax is placed on buyers, the demand curve shifts downward by the amount of the tax. The new equilibrium point is where the adjusted demand curve intersects the original supply curve, which is point C in the figure. The equilibrium price paid by buyers falls from P1 to P3, while the equilibrium quantity decreases from Q3 to Q2.