The demand curve for rutabagas is a straight line with slope 26 and the supply curve is a straight line with slope 2.Suppose that a new tax of $3 per sack of rutabagas is introduced.
A)The price received by suppliers falls by more than the price paid by demanders rises.
B)The total number of rutabagas purchased increases.
C)The price paid by demanders rises by the same amount as the price received by suppliers falls.
D)The price paid by demanders rises by more than the price received by suppliers falls.
E)The price paid by demanders rises by more than $3.

Question

Quizplus · Accepted Answer

When a tax is introduced in the market, the supply curve shifts upward by the amount of the tax ($3) leading to a new equilibrium with a higher price and lower quantity traded. The price received by suppliers falls due to the tax, while the price paid by demanders rises. However, the price paid by demanders rises by more than the price received by suppliers falls because the tax reduces the quantity traded in the market, and suppliers have to bear some of the burden of the tax by accepting a lower price. Therefore, choice D is correct.

The Demand Curve for Rutabagas Is a Straight Line with Slope