The demand curve for rutabagas is a straight line with slope 23 and the supply curve is a straight line with slope 2.Suppose that a new tax of $3 per sack of rutabagas is introduced.
A)The total number of rutabagas purchased increases.
B)The price paid by demanders rises by the same amount as the price received by suppliers falls.
C)The price received by suppliers falls by more than the price paid by demanders rises.
D)The price paid by demanders rises by more than the price received by suppliers falls.
E)The price paid by demanders rises by more than $3.

Question

Quizplus · Accepted Answer

When a tax is introduced, it creates a wedge between the price paid by buyers and the price received by sellers. The burden of the tax is shared between buyers and sellers depending on the elasticities of demand and supply. Since the demand curve is steeper (less elastic) than the supply curve, demanders will bear a larger portion of the tax burden, leading to the price paid by demanders rising by more than the price received by suppliers falls.

The Demand Curve for Rutabagas Is a Straight Line with Slope