Use the figure below to answer the following questions. Figure 6.3.3
-Refer to Figure 6.3.3.Suppose a tax of $1 is imposed.In which market would the buyer pay the highest portion of the tax?
A)(a)
B)(b)
C)(c)
D)(d)
E)all markets equally

Question

Use the figure below to answer the following questions.  Figure 6.3.3
-Refer to Figure 6.3.3.Suppose a tax of $1 is imposed.In which market would the buyer pay the highest portion of the tax?
A)(a) 
B)(b) 
C)(c) 
D)(d) 
E)all markets equally

Quizplus · Accepted Answer

In market D, the buyer pays the highest portion of the tax because the demand is relatively inelastic, meaning that buyers are not very sensitive to changes in price. As a result, when the tax is imposed, the price increases by more than in the other markets, and buyers have to pay a larger portion of the tax. In contrast, in markets A, B, and C, the demand is relatively elastic, meaning that buyers are more sensitive to changes in price. As a result, when the tax is imposed, the price increases by less than in market D, and buyers pay a smaller portion of the tax. The answer is not E because the markets respond differently to the tax, and buyers do not pay the same portion of the tax in all markets.

Use the Figure Below to Answer the Following Questions