Answer to Question #242164 in Microeconomics for suka

Question

At the Melbourne Cricket Ground, home of the AFL Grand Final, seating is limited to 95 000. Seeing a golden opportunity to raise revenue, the state government levies a tax of $5 on each Grand Final ticket, to be paid by the buyer. AFL fans, a famously civic-minded lot, dutifully send in the $5 per ticket. Draw a well-labelled graph showing the impact of the tax. On whom does the tax burden fall – the AFL (who sells the tickets), the fans or both? Explain your answer.

Answer 1

a)  There is a fall in the demand for tickets when the tax is paid on the consumer. The demand curve shifts to the left. The equilibrium move from E to E1.

b) The tax burden falls on both the AFL and the fans. The price paid by the fans increases and price paid by the seller falls. Both the parties have to bear the burden of the tax.