7. Effect of a tax on buyers and sellers The following graph shows the daily market for wine. Suppose the government institutes a tax of $11.60 per bottle. This places a wedge between the price buyers pay and the price sellers receive. 50 45 40 Supply 35 30 Tax Wedge 25 20 15 10 Demand se 100 150 200 250 300 30 400 a50 s00 QUANTITY (Bottles of wine) Fill in the following table with the quantity sold, the price buyers pay, and the price sellers receive before and after the tax. Quantity Price Buyers Pay Price Sellers Receive (Bottles of wine) (Dollars per bottle) (Dollars per bottle) Before Tax After Tax Using the data you entered in the previous table, calculate the tax burden that falls on buyers and on sellers, respectively, and calculate the price elasticity of demand and supply over the relevant ranges using the midpoint method. Enter your results in the following table. Tax Burden (Dollars per bottle) Elasticity Buyers Sellers The burden of the tax fallis more heavily on the, elastic side of the market. PRICE (Dolars per botte)

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Equilibrium Price and Quantity

Equilibrium refers to a state of balance that comes about because there is equality in all forces.