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Use the following graph for a competitive market to answer the question below. A decreasing line labeled D intersects two increasing lines labeled S1 (to the right) and S2 (to the left) at points (400, 2.50) and (300, 3.50), respectively. A point lies at S1 where quantity equals 300 and price equals 1.25. Assume the government imposes a $2.25 tax on suppliers, which results in a shift of the supply curve from S1 to S2. The amount of the tax paid by the seller isMultiple Choice$2.25.$1.25.$1.00.$0.

Question

Use the following graph for a competitive market to answer the question below. A decreasing line labeled D intersects two increasing lines labeled S1 (to the right) and S2 (to the left) at points (400, 2.50) and (300, 3.50), respectively. A point lies at S1 where quantity equals 300 and price equals 1.25. Assume the government imposes a 2.25taxonsuppliers,whichresultsinashiftofthesupplycurvefromS1toS2.TheamountofthetaxpaidbythesellerisMultipleChoice2.25 tax on suppliers, which results in a shift of the supply curve from S1 to S2. The amount of the tax paid by the seller isMultiple Choice2.25.1.25.1.25.1.00.$0.

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Solution

The amount of the tax paid by the seller is $1.00.

Here's the step-by-step explanation:

  1. Before the tax, the equilibrium price was $2.50 at a quantity of 400 units (point of intersection between D and S1).

  2. After the tax, the supply curve shifts to S2 and the new equilibrium price is $3.50 at a quantity of 300 units (point of intersection between D and S2).

  3. The tax imposed by the government is 2.25.However,thepriceincreasefrom2.25. However, the price increase from 2.50 to 3.50isonly3.50 is only 1.00.

  4. Therefore, the seller is effectively paying 1.00ofthe1.00 of the 2.25 tax, with the buyer paying the remaining $1.25 (the difference between the new and old price).

This problem has been solved

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