Figure 4-11
-Refer to Figure 4-11.Suppose the market is initially in equilibrium at price P₁and then the government imposes a tax on every unit sold.Which of the following statements best describes the impact of the tax?

Question

Figure 4-11

-Refer to Figure 4-11.Suppose the market is initially in equilibrium at price P₁and then the government imposes a tax on every unit sold.Which of the following statements best describes the impact of the tax?

Quizplus · Accepted Answer

If the demand curve shifts from D₁ to D₂, the quantity demanded decreases from Q1 to Q2, reducing the price received by the supplier from P1 to P2. Since the supplier cannot reduce the price due to the decrease in quantity demanded, the supplier has to absorb this pinch, resulting in a larger portion of the tax being borne by the supplier. Thus, the consumer will bear a greater share of the tax burden if the demand curve is D₂.

Figure 4-11 -Refer to Figure 4-11.Suppose the Market Is Initially in Equilibrium