7. Effect of a tax on buyers and sellers
The following graph shows the daily market for wine. Suppose the government institutes a tax of $23.20 per bottle. This places a wedge between the price buyers pay and the price sellers receive.
Fill in the following table with the quantity sold, the price buyers pay, and the price sellers receive before and after the tax.
Quantity(bottles of wine) Price buyers pay(Dollars per bottle) Price sellers receive(Dollars per bottle)
Before tax
After tax
Using the data 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(Dollars per bottle) Elasticity
Buyers
Sellers
The burden of the tax falls more heavily on the ..........elastic side of the market.