Suppose that a specific tax of $3 is imposed on producers of bread.The bread market supply is Qs = 10 + 0.5P and the bread market demand is Qd = 100-P.What is the producers' tax burden?
A) Producers' tax burden is $1.30.
B) Producers' tax burden is $3.00.
C) Producers' tax burden is $2.00.
D) Producers' tax burden is $2.30

Question

Quizplus · Accepted Answer

The producers' tax burden is determined by the change in price received by producers after the tax is imposed. The equilibrium without tax is found by setting Qs = Qd, which gives P = 60. With the tax, the supply equation becomes Qs = 10 + 0.5(P - 3). Solving for the new equilibrium gives P = 62, meaning producers receive 62 - 3 = 59. The price received by producers decreases by $1, so the producers' tax burden is $2.00.

Suppose That a Specific Tax of $3 Is Imposed on Producers