Qd = 180 – 2P
Qs = - 15 + P
If a tax of Rs 2/unit is imposed on sellers, calculate the effect on the price paid by buyers
and price received by sellers. Demonstrate that the effect would be unchanged if the tax
had been imposed on buyers instead of sellers. (2+2.75 +3)
Pretax equilibrium
P= 65
Q*= -15+ 65= 50
After Tax
3Q= 146
Q= 49
Suppliers receive in pretax supply
P= 15+ 49
= 64
Consumers receive the following
If tax is imposed on the consumers
1.5Q= 83
Q= 53.33
Price for consumers pretax supply
90- 0.5(53.33)= 63.5
Price for suppliers
P= 15+53= 78
NB: The conclusion is that whether the tax is imposed on the consumer or suppliers the effect is the same.
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