What is the effect of a tax on buyers on the demand curve and market equilibrium for ice-cream cones?
Understand the Problem
The question is summarizing the economic concept of how a tax on buyers affects the demand curve, equilibrium quantity, and prices paid by buyers and received by sellers in a market for ice-cream cones.
Answer
The demand curve shifts down; equilibrium quantity decreases, and prices change.
The tax on buyers shifts the demand curve downward by $0.50, decreasing the equilibrium quantity from 100 to 90 cones. The price sellers receive falls from $3.00 to $2.80, while the price buyers pay rises to $3.30.
Answer for screen readers
The tax on buyers shifts the demand curve downward by $0.50, decreasing the equilibrium quantity from 100 to 90 cones. The price sellers receive falls from $3.00 to $2.80, while the price buyers pay rises to $3.30.
More Information
Even though the tax is imposed on buyers, both buyers and sellers share the burden because of changes in equilibrium prices.
Tips
A common mistake is thinking only the buyer or seller bears the entire tax burden.
Sources
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