Exhibit 5-9 Supply and Demand Curves for Good X

In Exhibit 5-9, assume the government places a $200 per unit sales tax on Good X. The percentage of the burden of taxation paid by consumers of Good X is:

Question

Exhibit 5-9 Supply and Demand Curves for Good X
 
In Exhibit 5-9, assume the government places a $200 per unit sales tax on Good X. The percentage of the burden of taxation paid by consumers of Good X is:

Quizplus · Accepted Answer

When a sales tax is imposed on a good, the supply curve shifts upward by the amount of the tax. This causes the equilibrium price to increase and the equilibrium quantity to decrease. Both buyers and sellers share the burden of the tax, but the division of the burden depends on the relative elasticity of supply and demand. In this case, the demand curve is relatively more elastic than the supply curve, so consumers will bear a larger share of the burden, which is 50 percent.