Some states such as Delaware Montana and Oregon have no sale

Some states such as Delaware, Montana, and Oregon, have no sales tax. Assume that these states place a sales tax of $2 on each unit of sugary goods. Below is the graph that shows the before tax equilbrium price and quantity and then the after tax price and quantity. Based on the below graph, the $2 sales tax is paid by the seller only. is shared between the buyer and seller. O would be illegal. O is paid by the buyer only. Market for Sugary Goods $5.00 $4.50 4.00 $4.00 S3.50 $300 $3.00- $2.50 After Tax Supply Tax Supply 8-After tax >(-Before tax 2.00 1.50 $1.00 $0.50 nd K Prev 2 of 20 Next >

Solution

Answer.) b.) Is shared between the buyer and seller.

Note that before sales tax, buyer was paying $3 per unit of sugary good and after sales tax buyer is paying $4 per unit of sugary good. Thus, a sales tax of $2 per unit of sugary good will be shared between buyer and seller.