Asked by Judie Alfaro on Jun 10, 2024
Verified
The demand curve for rutabagas is a straight line with slope 26 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 price received by suppliers falls by more than the price paid by demanders rises.
B) The total number of rutabagas purchased increases.
C) The price paid by demanders rises by the same amount as the price received by suppliers falls.
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 graphical representation showing the relationship between the price of a good and the quantity of the good that producers are willing to supply.
Tax
A compulsory financial charge or other levy imposed by a government to fund public expenditures.
- Scrutinize the allocation of tax responsibilities among consumers and producers within various market frameworks.
Verified Answer
SY
Sunshine YoungJun 13, 2024
Final Answer :
D
Explanation :
When a tax is introduced in the market, the supply curve shifts upward by the amount of the tax ($3) leading to a new equilibrium with a higher price and lower quantity traded. The price received by suppliers falls due to the tax, while the price paid by demanders rises. However, the price paid by demanders rises by more than the price received by suppliers falls because the tax reduces the quantity traded in the market, and suppliers have to bear some of the burden of the tax by accepting a lower price. Therefore, choice D is correct.
Learning Objectives
- Scrutinize the allocation of tax responsibilities among consumers and producers within various market frameworks.