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Small mistakes are the stepping stones to large failures
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Small mistakes are the stepping stones to large failures. How might this saying apply to this lesson, and do you agree?
In your responses, provide an example of a real-life seemingly small mistake with large consequences. By real-life, I mean a situation that actually happened, not a theoretical one.
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(Ch 06) 6. Effect of a tax on buyers and sellers The following graph shows the daily market for jeans. Suppose the government institutes a tax of $11.60 per pair. This places a wedge between the price buyers pay and the price sellers receive. 50 45 40 35 Supply 30 Tax Wedge PRICE Dollars per pair 15 10 0 0 Demand 10 20 30 40 60 80 70 80 00 100 QUANTITY (Pairs of jeans)
in the following table with the quantity sold, the price buyers pay, and the price sellers receive before and after the tax. Quantity Price Buyers Pay Price Sellers Receive (Pairs of jeans) (Dollars per pair) (Dollars per pair) Before Tax After Tax Using the data you entered in the previous table, calculate the tax burden that falls on buyers and on sellers, respectively, and calculate the price elasticity of demand and supply over the relevant ranges using the midpoint method. Enter your results in the following table. Tax Burden (Dollars per pair) Elasticity Buyers less Sellers more The burden of the tax falls more heavily on the elastic side of the market o Grade it Now Save & Continue
Expert Solution
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6.
Tax levy by gocernment= $11.60
Before tax: Price paid by buyer=Price received by seller and quantity arises at a point where demand = Supply
After tax:
According to tax wedge line in the graph, Price paid by the buyer can be determined through demand curve, price received by seller determined by supply curve.
Quantity Price buyers pay Price sellers receive Before tax 50 25 25 After tax 40 35 (35-11.60=) 23.40 Price elasticity of demand= {(Q2-Q1)/[(Q2+Q1)/2]} / {(P2-P1)/[(P2+P1)/2]}
Q2= 40, Q1=50, P2= 35 and P1= 25
Price elasticity of demand=[(-10)/(45)] / [(10)/(30)]= -100/1350= -0.22 x 0.33= -0.07
Price elasticity of supply= {(Q2-Q1)/[(Q2+Q1)/2]} / {(P2-P1)/[(P2+P1)/2]}
Q2= 40, Q1=50, P2= 23.40 and P1= 25
Price elasticity of supply= [(-10)/(45)] / [(-1.60)/(24.2)]= -0.22 x -0.67= 0.15
Tax burden on buyer= 35-25= 10
Tax burden on seller= 25-23.40= 1.60
Tax Burden Elasticity Buyers 10 -0.07 Seller 1.60 0.15 The burden of the tax fall more heavily on the Less elastic side of the market.
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