Knowee
Questions
Features
Study Tools

Assuming a unitary elastic demand and supply, a tax on the sellers of coffee will cause the price the buyer pays to and the price the seller receives to .

Question

Assuming a unitary elastic demand and supply, a tax on the sellers of coffee will cause the price the buyer pays to and the price the seller receives to .

🧐 Not the exact question you are looking for?Go ask a question

Solution

Assuming a unitary elastic demand and supply, a tax on the sellers of coffee will cause the price the buyer pays to increase and the price the seller receives to decrease.

Here's why:

  1. When a tax is imposed on sellers, they are likely to pass on some or all of this tax to the buyers in the form of higher prices. This is because the tax increases the cost of production for the sellers.

  2. The increase in price will reduce the quantity demanded by the buyers, according to the law of demand. This is because buyers are sensitive to price changes when demand is unitary elastic.

  3. On the other hand, the price that the seller receives after paying the tax is lower than the price the buyer pays. This is because the tax is subtracted from the price that the seller receives.

  4. Therefore, the price the buyer pays increases and the price the seller receives decreases.

  5. The exact amount of the price increase for the buyer and the price decrease for the seller depends on the elasticity of demand and supply. If demand and supply are unitary elastic, the tax burden is split evenly between the buyer and the seller.

This problem has been solved

Similar Questions

If a tax is physically paid by sellers, then sellers will always bear the full burden of the tax

When the government imposes a tax on a firm that generates external costs, the tax is

If a tax is physically paid by sellers, then sellers bear the full 100% burden of the tax. Group of answer choicesTrueFalse

Suppose a $1 tax is placed on the sellers of a good. The more elastic the supply of the good, the

Suppose the demand curve for a product is vertical and the supply curve is upward sloping. If a unit tax is imposed in the market for this product,

1/1

Upgrade your grade with Knowee

Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.