Use the figure below to answer the following question(s) .
Figure 4-8

Refer to Figure 4-8. The supply curve S ₁ and the demand curve D indicate initial conditions in the market for soft coal. A $40-per-ton tax on soft coal is levied, shifting the supply curve from S ₁ to S ₂. Which of the following states the actual burden of the tax?

Question

Use the figure below to answer the following question(s) .
Figure 4-8

Refer to Figure 4-8. The supply curve S ₁ and the demand curve D indicate initial conditions in the market for soft coal. A $40-per-ton tax on soft coal is levied, shifting the supply curve from S ₁ to S ₂. Which of the following states the actual burden of the tax?

Quizplus · Accepted Answer

When the supply curve shifts leftward, the equilibrium price increases and the equilibrium quantity decreases. In this case, the new equilibrium price is at $60 per ton and the new equilibrium quantity is at 800 tons. The difference between the new and old equilibrium prices is $20, which is the amount of the tax. Since the tax increases the cost of production for sellers, they are willing to sell less coal at any given price. As a result, some of the burden of the tax is shifted to buyers in the form of a higher price. The amount of the burden depends on the price elasticity of demand and supply. In this case, buyers bear $10 of the tax burden (the difference between the old and new equilibrium prices up to the new quantity demanded), and sellers bear $30 of the tax burden (the remainder of the tax up to the new quantity supplied). Therefore, the answer is A.

Use the Figure Below to Answer the Following Question(s)