Suppose that a market is initially in equilibrium.The initial demand curve is The initial supply curve is Suppose that the government imposes a $3 tax on this market.How much of this $3 is paid for by producers?
A) $0.
B) $1.
C) $1.50.
D) $2.

Question

Suppose that a market is initially in equilibrium.The initial demand curve is  The initial supply curve is  Suppose that the government imposes a $3 tax on this market.How much of this $3 is paid for by producers?
A) $0. 
B) $1. 
C) $1.50. 
D) $2.

Quizplus · Accepted Answer

When a tax is imposed, the supply curve shifts upward by the amount of the tax. In this case, the supply curve becomes P=$2+Q.The new equilibrium price will be the point where the new supply curve intersects the original demand curve. Solving for Q gives Q=8 and P=$11. At this new equilibrium price, producers will receive $8 per unit, which is $2 less than what they received before the tax was imposed. Therefore, producers will pay for $2 of the $3 tax while consumers will pay for the remaining $1.

Suppose That a Market Is Initially in Equilibrium