Suppose the market for jelly is perfectly competitive. The equilibrium price of jelly is $4.00, and the equilibrium quantity is 30. The government imposes a per-unit tax of $1.00, paid by the producers of jelly.
(a) Draw two sets of identical price-quantity axes (i.e., drawn to the same scale with the same units of measurement).
(b) What factor infuences which party (buyers or sellers) faces a larger tax burden?
(c) On the first set of axes, draw a situation in which the burden of the tax falls more heavily on the buyers of jelly. Mark the equilibrium price and quantity before the tax as P1 and Q1, respectively.
Mark the price and quantity after the tax as P2 and Q2, respectively. Also, mark the net payment received by suppliers, net of the tax passed on to the government.
(d) On the second set of axes, draw a situation in which the burden of the tax falls more heavily on the sellers of jelly. Mark the equilibrium price and quantity before the tax as P1 and Q1, respectively.
Mark the price and quantity after the tax as P2 and Q2, respectively. Also, mark the net payment received by suppliers, net of the tax passed on to the government.