(Figure and Table: The Market for Lyft Rides) Use Figure and Table: The Market for Lyft Rides. If the government imposes an excise tax of $1 per ride on producers, then people who ride Lyft will pay _____ of each $1 tax.
A)$1
B)$0.50
C)$0.25
D)$0.00

Question

(Figure and Table: The Market for Lyft Rides) Use Figure and Table: The Market for Lyft Rides. If the government imposes an excise tax of $1 per ride on producers, then people who ride Lyft will pay _____ of each $1 tax. 
A)$1 
B)$0.50 
C)$0.25 
D)$0.00

Quizplus · Accepted Answer

When an excise tax is imposed, the supply curve shifts upward by the amount of the tax. This means that the price paid by consumers also increases. In this case, if the excise tax is $1 per ride, the supply curve will shift from S1 to S2, and the equilibrium price will rise from $8 to $9. The amount of the tax is shared between producers and consumers, but the incidence (or burden) of the tax depends on the price elasticities of supply and demand. In this case, because demand for Lyft rides is relatively elastic (as shown by the flat demand curve), consumers will bear most of the burden of the tax. The new price of $9 represents a 12.5% increase over the old price of $8, so consumers will pay about $0.50 of the $1 tax, while producers will only receive $8 instead of $9, so they will bear the remaining $0.50 of the tax. Therefore, the answer is B.

(Figure and Table: the Market for Lyft Rides) Use Figure