The following graph represents supply and demand in the market for tanning sessions. Suppose that the government imposes a $15excise tax on providers of tanning sessions.a. Using the graph below, demonstrate the effect of this tax on the market for tanning sessions.Instructions: Use the tool provided, 'New line,' to draw; either a new supply or demand curve that reflects the impact of this tax. Plotonly the endpoints of the line. Then use the tool provided, 'New EQ,' to indicate the new equilibrium point.$50Tools$45$40Supply,New EQNew line$35$30$25$20$15$10$5Demand,10 20 30 40 50 60 70 80 90 100Quantity (number of tanning sessions)b. Who pays more of the tax incidence?O Consumers and producers split the tax.O Producers, because the price elasticity of supply exceeds the price elasticity of demand.O Consumers, because the price elasticity of supply exceeds the price elasticity of demand.O Consumers, because the price elasticity of supply is less than the price elasticity of demand.Price (per tanning session)

The graph is showing demand and supply of tanning session when government imposes excise tax of $15…

b. Who pays more of the tax incidence? O Consumers and producers split the tax. O Producers, because the price elasticity of supply exceeds the price elasticity of demand. O Consumers, because the price elasticity of supply exceeds the price elasticity of demand. O Consumers, because the price elasticity of supply is less than the price elasticity of demand.

b. Who pays more of the tax incidence? O Consumers and producers split the tax. O Producers, because the price elasticity of supply exceeds the price elasticity of demand. O Consumers, because the price elasticity of supply exceeds the price elasticity of demand. O Consumers, because the price elasticity of supply is less than the price elasticity of demand.

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter4: Supply And Demand: An Initial Look

Section: Chapter Questions

Problem 8TY

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