A tax imposed on the sellers of a good will raise the price paid by buyers and lower the equilibrium quantity. raise the price paid by buyers and raise the equilibrium quantity. raise the net price received by sellers and raise the equilibrium quantity. O raise the net price received by sellers and lower the equilibrium
The correct answer and explanation is:
The correct answer is: “raise the price paid by buyers and lower the equilibrium quantity.”
Explanation:
When a tax is imposed on the sellers of a good, the market dynamics are impacted in several ways:
- Price Paid by Buyers: The tax raises the cost for sellers to produce and supply the good. In response, sellers typically raise the price they charge buyers in an attempt to maintain their profit margins. This means that the price paid by buyers increases. However, the exact amount of the price increase depends on the price elasticity of demand and supply in the market.
- If the demand is inelastic (buyers are less responsive to price changes), the price increase for buyers will be larger.
- If the demand is elastic (buyers are more responsive to price changes), the price increase will be smaller, and buyers might bear a smaller portion of the tax.
- Net Price Received by Sellers: The net price received by sellers is the price they receive after the tax has been deducted. As the sellers raise their prices to offset the tax, they still end up receiving a lower effective price because part of the tax burden is passed on to them. The amount of the burden on sellers also depends on the elasticity of demand and supply. Generally, if demand is more elastic, sellers bear a larger share of the tax burden.
- Equilibrium Quantity: A tax reduces the incentive to buy and sell a good. As the price rises for buyers and the net price received by sellers falls, the quantity demanded by buyers decreases, and the quantity supplied by sellers also decreases. As a result, the equilibrium quantity (the quantity of goods bought and sold at the market equilibrium) decreases.
Thus, imposing a tax on sellers tends to:
- Raise the price paid by buyers.
- Lower the equilibrium quantity.
This happens because the higher price discourages demand, while the tax discourages supply, both leading to fewer transactions in the market.