(Figure: The Market for Exercise Apps) Use Figure: The Market for Exercise Apps. If the government imposes a tax of $1 in this market, producers will pay _____ of the tax, while consumers will pay _____ of the tax.
A)$1; $0
B)$0; $1
C)$0.50; $0.50
D)$0.50; $1.50

Question

(Figure: The Market for Exercise Apps) Use Figure: The Market for Exercise Apps. If the government imposes a tax of $1 in this market, producers will pay _____ of the tax, while consumers will pay _____ of the tax. 
A)$1; $0 
B)$0; $1 
C)$0.50; $0.50 
D)$0.50; $1.50

Quizplus · Accepted Answer

When a tax is imposed on a market, the burden of the tax is shared between the producers and the consumers. In this case, the market for exercise apps is represented by the demand and supply curve. When a tax of $1 is imposed, the supply curve shifts upwards by $1, and the equilibrium price increases from $4 to $4.50.

Producers will only receive $4.50 for every unit sold, but they have to pay $1 in tax, which reduces their profit. Consumers will pay $0.50 more for every unit purchased, but they would have bought the app at the original equilibrium price of $4 without the tax. Therefore, producers will pay $0.50 of the tax, and consumers will pay $0.50 of the tax. The burden of the tax is shared equally between the producers and the consumers because they both pay the same amount of tax. So, the correct answer is C.

(Figure: the Market for Exercise Apps) Use Figure: the Market