Question

Based on your answer to Question 8, the dollar portion of the $1.50/drink tax that is borne by consumers is $  . The dollar portion of the $1.50/drink tax that is borne by producers is $  .  (Please enter only numbers in the blanks, and round numbers to the second decimal place if necessary).  

Thus, the economic burden of the tax falls mainly on  (enter either consumers or producers in the blank).

Question 8 https://www.chegg.com/homework-help/questions-and-answers/consider-market-energy-drinks-described-question-7-suppose-hearing-stories-mixing-types-en-q27158177

Answer 1

From data in original problem:

Demand function: Q = 22 - 2P

Supply function: Q = 4P - 2

In pre-tax equilibrium, equating demand and supply,

22 - 2P = 4P - 2

6P = 24

P = $4

After tax of $1.5, supply shifts left by $1.5 at every output level and new supply function becomes

Q = 4(P - 1.5) - 2 = 4P - 6 - 2 = 4P - 8

Equating with demand,

22 - 2P = 4P - 8

6P = 30

P = $5

Portion of tax borne by consumers = $5 - $4 = $1

Portion of tax borne by producers = $1.5 - $1 = $0.5