The effect of a sales tax collected from sellers is to 1.Shift the demand curve up. 2.Shift the supply curve down. 3.Shift the demand curve down. 4.Shift.

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Presentation transcript:

The effect of a sales tax collected from sellers is to 1.Shift the demand curve up. 2.Shift the supply curve down. 3.Shift the demand curve down. 4.Shift the supply curve up. 5.Shift both the demand and the supply curve.

The effect of a sales tax collected from buyers is to 1.Shift the demand curve up. 2.Shift the supply curve down. 3.Shift the demand curve down. 4.Shift the supply curve up. 5.Shift both the demand and the supply curve.

And on to our lecture…

If the demand curve slopes down and the supply curve is vertical, a sales tax collected from buyers 1.Not change the price paid to sellers. 2.Will reduce price paid to sellers by the amount of the tax. 3.Will reduce price paid to sellers by less than amount of the tax. 4.Will increase price paid to sellers.

Vertical supply case quantity price Pretax price Post tax Demand curve shifts down

The Demand curve has equation Q=100-P. Supply curve has equation Q=10+2P. A sales tax of $15 is introduced. The after-tax price to demanders will 1.Rise by $5 2.Rise by $ Rise by $15. 4.Rise by $10 5.There is not enough information to tell.

Why is that? Let x be the rise in buyer’s after-tax price and y the fall in supplier’s after-tax price. We know that supply curve is twice as steep as the demand curve so y=2x. We also know that x+y=$15 is total amount of the tax. So x+2x=$15. Therefore x=$5.