What is the price that buyers pay? How is the tax split between the buyer and the seller? What is the government's tax revenue?
a.) 1,000,000x20%,000 tax
1,000,000 +200,000=
1,200,000 what the buyers would pay.
b.) When a good is taxed, it has two prices: a price that excludes the tax and a price that includes the tax. Buyers respond only to the price that includes the tax, because that is the price they pay. Sellers respond only to the price that excludes the tax, because that is the price they receive. The tax is like a wedge between these two prices.
c.) 200,000 x 240= 48,000,000 in tax revenue.
On a graph, show the excess burden of this tax. Is this tax efficient?