Reference no: EM131357664
For the following questions, assume that the current market price -- in the absence of a tax -- in a perfectly competitive market is $3 per unit. For each of the following situations, identify what happens to the price of the good. For 'price,' only consider the sticker price. For example, a sales tax is levied on the buyer, who pays the sticker price plus the tax. A gas tax, on the other hand, is levied on the seller, so that the price you see is with the tax added.
1. A $0.50 per unit tax is imposed on just one of the sellers, with the tax levied on the single seller.
2. A $0.50 per unit tax is imposed on buyers, but the supply curve is perfectly inelastic (vertical).
3. Same as (2) but the tax is imposed on the sellers.
4. A $0.50 per unit tax is imposed on the sellers. The price elasticity of demand and the price elasticity of supply are identical (e.g., both equal 1.2).
5. Same as (4) but the tax is imposed on the consumers.
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