The following graph shows the daily market for jeans. Suppose the government ins

Question

The following graph shows the daily market for jeans. Suppose the government institutes a tax of $46.40 per pair. This places a wedge between the price buyers pay and the price sellers receive Supply 1 Tax Wedge 50100150200 250 300 350 400 450 500 QUANTITY (Pairs of jeans) Flr in the folowing table with the quantity sold, the price buyers pay, and the price sellers receive before and after the tax. Quantity Price Buyers Pay Price Sellers Receive 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 Tax Burden Buyers

Explanation / Answer

Elasticity of demand = (p1 + p2)/(q1 + q2) x (q2 - q1)/(p2 - p1)

p1 = 100, p2 = 140, q1 = 250, q2 = 210

Ed = 240/460 x - 40/40 = - 0.52

Elasticity of supply = (p1 + p2)/(q1 + q2) x (q2 - q1)/(p2 - p1)

p1 = 100, p2 = 93.60, q1 = 250, q2 = 210

Es = 193.60/460 x - 40/- 6.40 = 0.42 x 6.25 = 2.625

Quantity Price buyers pay Price sellers receive Before Tax 250 100 100 After Tax 210(approx) 140 93.60

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