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Unformatted text preview: C) Will reduce price received by sellers by less than amount of the tax. D) Will increase price paid to sellers. Vertical supply case quantity price Pretax price Post tax Demand curve shifts down The Demand curve has equation Q=100P. Supply curve has equation Q=10+2P. A sales tax of $15 is introduced. The aftertax price to demanders will 1. Rise by $5 2. Rise by $7.50. 3. Rise by $15. 4. Rise by $10 5. There is not enough information to tell. Why is that? Let x be the rise in buyer’s aftertax price and y the fall in supplier’s aftertax price. We know that supply curve is twice as steep as the demand curve so y=2x. We also know that x+y=$15 is total amount of the tax. So x+2x=$15. Therefore x=$5....
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This note was uploaded on 12/25/2011 for the course ECON 1 taught by Professor Bergstrom during the Fall '07 term at UCSB.
 Fall '07
 Bergstrom

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