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Scenario: The Market for Good X:
The market for good X can be depicted with the following demand and supply equations:
Demand: P = 50 - 0.5Q
Supply: P = 0.33Q
where P is price per unit and Q represents quantity in units. Policy makers plan on imposing a $1 per unit tax on this good.
-(Scenario: The Market for Good X) Look at the scenario The Market for Good X. If a $1 per unit tax is imposed, the price of good X will increase by:

Question

Quizplus · Accepted Answer

The tax will be shared between buyers and sellers. The price increase for buyers is determined by the relative elasticities of demand and supply. Here, the supply is more elastic than demand, so the price increase will be less than the full tax amount.

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