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

Assume the government imposes a $3 tax on buyers, which results in a shift of the demand 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 $3 tax on buyers, which results in a shift of the demand curve from to . The amount of the tax paid by the seller is

BlackTom AI · Accepted Answer

To analyze the tax incidence, we start by identifying the pre-tax equilibrium and the post-tax equilibrium from the graph. The tax is imposed only on buyers and shifts the demand curve from D1 to D2, which reduces quantity from the original equilibrium to a new one where the seller’s receipt changes.

Option A: $1. If sellers receive $1 less than before, that means the price they receive after the tax decreases by $1. Since the total tax is $3, the remaining $2 must be paid by buyers. This distribution (sellers pay $1, buyers pay $2) is consistent with the graph showing a partial shift of burden onto buyers while sellers still receive a somewhat lower price post-tax. Therefore, $1 is plausible as the amount paid by the seller.

Option B: $8. This would imply the seller bears $8 of the tax, which is impossible since the entire tax is only $3 and the price the seller receives cannot drop by more than the full tax amount. Such a result would exceed the total tax and contradict the diagram.

Option C: $2. If the seller bore $2 of the tax, the buyer would bear $1, totaling $3. While this is mathematically possible, the graph’s indicated price changes show the seller’s net price falls by less than the buyer’s increase, i.e., the seller bears less than half of the tax. The diagram supports a smaller burden on sellers than $2, making this option unlikely given the depicted shifts.

Option D: $3. This would mean the seller bears the entire tax, leaving buyers paying none of the tax. The post-tax demand shift and the observed price changes in the graph indicate that buyers do incur part of the burden as well, so the seller paying the full $3 is inconsistent with the scenario.

In summary, the graph depicts the tax incidence as borne partly by buyers and partly by sellers, with the seller’s price falling by $1 and the buyer’s price rising by $2, totaling a $3 tax. Hence, the correct understanding corresponds to the seller bearing $1 of the tax, which aligns with Option A.

Use the following graph for a competitive market to answer the question below. Assume the government imposes a $3 tax on buyers, which results in a shift of the demand curve from to . The amount of the tax paid by the seller is

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