Figure 1 shows the market for basketballs, when basketballs are not taxed.

1. If buyers of basketballs are taxed $6 a ball, what price does the buyer pay and how many basketballs do they buy? What is the tax revenue collected?

2. If sellers of basketballs are taxed $6 a ball, what price does the seller receive and how many basketballs do they sell? What is the tax revenue collected?

3. If basketballs are taxed at $6 a ball, what is the excess burden of the tax? Is the demand for basketballs or the supply of basketballs more inelastic?

Explain your answer

Transcribed Image Text:

FIGURE 1 Price (dollars per ball) 25 20 15 10 5 0 S D 4 8 12 16 Quantity (millions of balls per week)