Question

The VOX Cinemas City Centre Ajman has seating limited to 1000. Hence, the number of tickets issued is fixed at that figure. Assume that the Ajman municipality decides to impose a per ticket tax of 5 AED to be paid by the ticket buyer.

1. raw a graph showing the impact of the tax.

1. On whom does the tax burden fall – the owners of the VOX Cinemas owners, the buyers of the tickets, or both? Why?

Answer 1

(a) Number of seats available = 1,000

The following graph shows the impact of tax:

When Ajman municipality imposes a per unit tax on movie ticket then as a result the demand for movie tickets decreases and this will shift the demand curve leftwards from DD to DD'. There is a rise in the price paid by the buyers from Po to Pb and fall in the price received by the seller from Po to Pp. Also, the quantity decreases from 1000 to QT.

(b) The burden of tax falls on both buyers of the tickets as well as on the owners of the cinemas. The tax burden is largely dependent upon the elasticity of the supply and demand curve, it falls more on the less elastic side of the market.