Asked by James Copper on Jun 20, 2024
Verified
The demand curve, which is a downward-sloping straight line, crosses the supply curve, which is an upward-sloping straight line.If a tax is introduced where sellers must pay a tax of $2 per unit sold, then the equilibrium price paid by demanders will rise by more than $1 if the absolute value of the slope of the demand curve is greater than the absolute value of the slope of the supply curve.
Demand Curve
A graphical representation showing the relationship between the price of a good or service and the quantity demanded by consumers at various prices.
Supply Curve
A graphical representation of the relationship between the price of a good and the amount of it that producers are willing to supply.
Equilibrium Price
The market price at which the supply of an item matches its demand, resulting in an efficient market condition where there is no excess supply or demand.
- Evaluate the effects of shifts in supply and demand curves on market equilibrium.
- Analyze the distribution of tax burden between consumers and producers in various market structures.
Verified Answer
TS
Taylor SharpJun 26, 2024
Final Answer :
True
Explanation :
When a tax is introduced, the supply curve shifts upward by the amount of the tax. The new intersection of the supply and demand curves gives the new equilibrium price. If the absolute value of the slope of the demand curve is greater than the absolute value of the slope of the supply curve, then the demand curve is steeper and the increase in price will be greater than the amount of the tax ($2). Therefore, the equilibrium price paid by demanders will rise by more than $1.
Learning Objectives
- Evaluate the effects of shifts in supply and demand curves on market equilibrium.
- Analyze the distribution of tax burden between consumers and producers in various market structures.