200
180
160
140
Demand
Supply
120
PRICE (Dollars per bag)
100
80
Tax Wedge
60
40
20
0
50 100 150 200 250 300 350 400 450 500
QUANTITY (Bags of handbags)
Complete the following table by filling in the quantity sold, the price buyers pay, and the price sellers receive before and after the tax.
Quantity
Price Buyers Pay
Prica Sellers Receive
(Dollars per bag)
(Bags of handbags) (Dollars per bag)
Before Tax
After Tax
Using your answers from 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.
Taz Burdan
(Dollars per bag)
Elasticity
Buyers
Sellers
The tax burden falls more heavily on the side of the market that is elastic.
