Figure 6-11

Refer to Figure 6-11. Suppose a tax of $2 per unit is imposed on this market. Which of the following is correct?

Question

Figure 6-11

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Refer to Figure 6-11. Suppose a tax of $2 per unit is imposed on this market. Which of the following is correct?

BlackTom AI · Accepted Answer

In this question, we’re asked to evaluate the incidence of a per-unit tax in the market shown in Figure 6-11 and determine how the tax burden is split between buyers and sellers.
Option 1: 'One-half of the burden of the tax will fall on buyers, and one-half of the burden of the tax will fall on sellers.' This would imply perfectly equal sharing of the tax burden. Equal sharing occurs only when the elasticities of supply and demand are identical in magnitude, or when the curves are symmetric in a certain way. If the graph indicates different elasticities (a steeper supply or demand curve on one side), the burden will not be exactly 50-50. Without that symmetry, this option is unlikely.
Option 2: 'Two-thirds of the burden of the tax will fall on buyers, and one-third of the burden of the tax will fall on sellers.' This option suggests buyers are significantly more burdened. If the demand is relatively inelastic compared to supply, buyers bear more of the tax. Conversely, if supply is more inelastic, sellers bear more. The specific 2/3 vs 1/3 split corresponds to a particular relative elasticity balance depicted in the graph. If the graph shows buyers' price rising substantially while sellers’ net receipts fall less, this option could be plausible.
Option 3: 'One-fourth of the burden of the tax will fall on buyers, and three-fourths of the burden of the tax will fall on sellers.' This indicates sellers are bearing most of the tax burden. That would occur if the supply is much more inelastic than demand (the seller side is less responsive to price changes). If the diagram’s slopes imply a much steeper supply relative to demand, this option could fit. However, many standard textbook diagrams with a tax wedge do not produce such an extreme split unless the elasticities are very unbalanced.
Option 4: 'One-third of the burden of the tax will fall on buyers, and two-thirds of the burden of the tax will fall on sellers.' This implies sellers bear more of the burden. This would happen if the supply is relatively less elastic than demand, making suppliers less responsive to price changes. If the graph’s geometry shows the price received by sellers dropping more or buyers’ price rising less, this split could be correct.
To decide which option aligns with the given figure, we compare how the tax wedge shifts the equilibrium price and quantity and how the price paid by buyers and the price received by sellers change. In the figure, the tax wedge of $2 per unit creates a gap between the price buyers pay and the price sellers receive. The precise distribution of that wedge across the two sides depends on the relative elasticities implied by the slopes of the demand and supply curves in the picture. The dashed lines and the new equilibrium quantity (with buyers facing a higher price and sellers receiving a lower net price) are designed to illustrate a greater transfer of burden toward buyers in this configuration. Therefore, the option stating that two-thirds of the burden falls on buyers and one-third on sellers best matches the depicted shifts in price and the resulting quantity.
Note: The other options propose more balanced or more extreme splits that would require different relative elasticities than those suggested by the drawn demand and supply lines in this figure. The exact reasoning hinges on the slope/rate of responsiveness of quantity demanded and quantity supplied to price changes as depicted, which the figure conveys through the new equilibrium and the tax wedge.

Figure 6-11 Refer to Figure 6-11. Suppose a tax of $2 per unit is imposed on this market. Which of the following is correct?

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Figure 6-11 ​ Refer to Figure 6-11. Suppose a tax of $2 per unit is imposed on this market. Which of the following is correct?