Solution-Larger fraction of the tax

Larger fraction of the tax

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Reference no: EM131413881

The following claim is often made with respect to per unit taxes imposed on some good or service: "the producers will pass the tax to the consumers".

a.) Show a diagram of a market after a tax of $T is imposed on a good and illustrate that the tax burden is shared between the consumers and the producers. In your graph label the burden on the consumer and the burden on the producer as a result of the tax.

b.) What determines who pays larger fraction of the tax, the sellers or the buyers? Explain with the use of a diagram.

c.) Show on the same diagram in part b the deadweight loss that results from the tax.

d.) The deadweight loss due to a tax is smaller, the more elastic the demand curve for that good is. True/false, explain with the help of a diagram.

Reference no: EM131413881

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Larger fraction of the tax

Reference no: EM131413881

Reference no: EM131413881

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