Answered: The following graph shows the daily…

Principles of Microeconomics

7th Edition

ISBN:9781305156050

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter6: Supply, Demand And Government Policies

Section: Chapter Questions

Problem 10PA

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Question

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
(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	Elasticity
(Dollars per bottle)
Buyers
Sellers

The burden of the tax falls more heavily on the __elastic side of the market.

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.
F0
45
40
Supply
35
30
Tax Wedge
25
20
15
10
5
Demand
0
0
50
100
150
200
250
300
350
400
450
500
QUANTITY (Bottles of wine)
PRICE (Dollars per bottle)
S

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