The inverse demand function for cigars is defined by p = 240 - 2q, and the inverse supply function is defined by p = 3 + q.Cigars are taxed at $4 per box.
A)The after-tax price paid by consumers rises by more than $2, and the after-tax price received by suppliers falls by less than $2.
B)The after-tax price paid by consumers goes up by less than $2, and the after-tax price received by suppliers rises.
C)Consumers and suppliers share the cost of the tax equally.
D)The after-tax price paid by consumers rises by $4, and the after-tax price received by suppliers stays constant.
E)The after-tax price paid by consumers rises by less than $2, and the after-tax price received by suppliers stays constant.

Question

Quizplus · Accepted Answer

The tax burden is typically shared between consumers and producers, with the division depending on the elasticities of demand and supply. Since the tax is $4, it's unlikely that one side will bear the full cost directly. The statement that consumers pay more than $2 extra while suppliers receive less than $2 less suggests a sharing of the tax burden, which aligns with economic principles.

The Inverse Demand Function for Cigars Is Defined by P