After imposition of the tax, what is the after-tax price received by the sellers?
The correct answer and explanation is:
To determine the after-tax price received by sellers, we need to understand the impact of a tax on a supply and demand diagram. However, since no specific diagram, values, or context is provided, I’ll explain it using a general market scenario.
Correct Answer:
The after-tax price received by sellers is less than the price paid by buyers, and it equals the market price minus the tax amount.
If, for example, a $1.50 per unit tax is imposed and the buyer pays $6.00 per unit after the tax, then the after-tax price received by the seller is $4.50.
Explanation (300 words):
When a government imposes a tax on a good or service, it creates a wedge between the price buyers pay and the price sellers receive. This tax can be legally imposed on either buyers or sellers, but the economic outcome is the same — the market adjusts to share the tax burden between both parties based on the price elasticities of supply and demand.
The buyer’s price (also called the “gross price”) is the amount the consumer pays, including the tax. The seller’s price (the “net price”) is what the seller keeps after sending the tax amount to the government.
In graphical terms, a per-unit tax shifts the supply curve upward (or demand curve downward) by the amount of the tax. The vertical distance between the new supply curve (with tax) and the original supply curve represents the tax.
The market reaches a new equilibrium where the quantity traded is reduced, the price buyers pay increases, and the price sellers receive decreases. The difference between the buyer’s price and the seller’s price is exactly equal to the tax.
How much of the tax is borne by each party depends on elasticity:
- If demand is inelastic (consumers are not sensitive to price), buyers bear more of the tax.
- If supply is inelastic (producers cannot easily adjust), sellers bear more of the tax.
Thus, after a tax is imposed, sellers receive less per unit than before, which may reduce their willingness to produce or supply the good.