Asked by Aa'Kyra Rivers on May 10, 2024
Verified
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.
Supply Curve
A supply curve graphically represents the relationship between the price of a good and the quantity of the good that producers are willing and able to supply, typically sloping upwards.
Demand Curve
A graph showing the relationship between the price of a good and the quantity demanded by consumers, typically sloping downward from left to right.
Tax
An obligatory fiscal contribution or another form of assessment enacted by a governmental body on individuals or entities, aimed at generating revenue for government activities and public spending.
- Inspect how governmental procedures, such as the enforcement of price floors, imposition of taxes, and the establishment of price ceilings, affect the equilibrium within markets.
- Understand the relationship between the elasticity of supply and demand and tax incidence.
Verified Answer
BR
Brooke RangelMay 13, 2024
Final Answer :
D
Explanation :
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.
Learning Objectives
- Inspect how governmental procedures, such as the enforcement of price floors, imposition of taxes, and the establishment of price ceilings, affect the equilibrium within markets.
- Understand the relationship between the elasticity of supply and demand and tax incidence.