Question 6- Chapter 6 (18 marks)

1.Using the graph shown below, answer the following questions. (8)

a. What was the equilibrium price in this market before the tax?

b. What is the amount of the tax?

c. How much of the tax will the buyers pay?

d. How much of the tax will the sellers pay?

e. How much will the buyer pay for the product after the tax is imposed?

f. How much will the seller receive after the tax is imposed?

g. As a result of the tax, what has happened to the level of market activity?

Figure 6 a

2.Using the equations shown below, answer the following questions with a carefully labelled graph (without calculations). (10)

QD = a - bP

QS = c + dP

a. Draw demand and supply curves, and show the market equilibrium point.

b. Assuming a tax of T is imposed on the seller side, what is the new demand and supply curve?

c. What is the new equilibrium point?

d. Label the portion of tax that buyer pays and the portion that seller pays?

e. What is the effective price the sellers receive?

Figure 6 b