Figure 8-5

-Refer to Figure 8-5.When a tax is imposed in this market,the price sellers effectively receive is
A)$6.
B)$10.
C)$16.
D)between $6 and $10.

Question

Figure 8-5
 
-Refer to Figure 8-5.When a tax is imposed in this market,the price sellers effectively receive is
A)$6. 
B)$10. 
C)$16. 
D)between $6 and $10.

Quizplus · Accepted Answer

When a tax is imposed, the market price paid by buyers increases by the amount of the tax ($4 in this case), and the price received by sellers decreases by the same amount.

Before the tax, the equilibrium price was $10, and the equilibrium quantity was 20.

After the tax, buyers are willing to pay $14 ($10 + $4), and sellers receive $10 ($14 - $4).

However, since the tax is levied on sellers, they will reduce the quantity they are willing to supply. The new equilibrium will be at the point where the quantity supplied equals the quantity demanded at this new price.

In this case, at a price of $14, only 12 units will be supplied (point C in the figure). At this quantity, buyers are willing to pay $14, but sellers will only receive $6 ($14 - $8 tax).

Therefore, the price sellers effectively receive is $6. Thus, the answer is A) $6.

Figure 8-5 -Refer to Figure 8-5.When a Tax Is Imposed in This