Use the following graph for a competitive market to answer the question below.

Assume the government imposes a $2.25 tax on suppliers, which results in a shift of the supply curve from to . The amount of the tax paid by the seller is

Question

Use the following graph for a competitive market to answer the question below.

Assume the government imposes a $2.25 tax on suppliers, which results in a shift of the supply curve from  to . The amount of the tax paid by the seller is

BlackTom AI · Accepted Answer

First, observe that a tax on suppliers shifts the supply curve upward by the amount of the tax, from S1 to S2, leading to a higher price for buyers and a lower (net) price to sellers at the new equilibrium quantity.
Option-by-option analysis:
- Option $2.25: If the seller paid the entire tax, the price to buyers would rise by the full tax and the price received by sellers would fall by the entire tax, leaving no incidence on buyers. This is inconsistent with a standard upward shift in supply where both sides share the burden.
- Option $0: A tax always changes the private prices paid by buyers or received by sellers; therefore, neither side paying anything is inconsistent with the tax being levied and the supply curve shifting. This option can be dismissed.
- Option $1.25: The tax is $2.25 in total, and the post-tax equilibrium in the graph shows buyers paying more than before but not by the full tax, while sellers receive less than before by a smaller amount. In the graph, the seller’s price falls by $1.25 (the portion of the tax borne by sellers), while the buyer’s price rises by $1.00 (the portion borne by buyers). The sum of these two changes equals the total tax of $2.25, so the seller’s burden is $1.25.
- Option $1.00: If buyers bore $1.00 of the tax and sellers bore $1.25, this would reflect the actual split shown in the graph (buyer price up by $1.00, seller price down by $1.25). However, this option states only the buyer’s portion and ignores the seller’s portion explicitly, which makes it incomplete as a direct answer to how much the seller pays. Since the question asks for the amount paid by the seller, this option is not the correct choice.
Putting the pieces together, the correct seller burden that plus the buyer burden sums to the total tax of $2.25 is $1.25 for the seller. This aligns with the given answer: $1.25.

Use the following graph for a competitive market to answer the question below. Assume the government imposes a $2.25 tax on suppliers, which results in a shift of the supply curve from to . The amount of the tax paid by the seller is

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