The graphs below show four markets in which a tax will be im

The graphs below show four markets in which a tax will be imposed. Put the proper label next to each graph according to how the tax will be shared between buyers and sellers once the tax is in place.

Solution

Graph 1 (Upper left) : Buyers pay majority of tax

Explanation:

Since demand curve is less elastic than the supply curve, therefore, buyers will pay majority of tax

Graph 2 (Upper right) : Buyers pay al the tax

Explanation:

Since demand curve is perfectly inelastic, therefore, all the tax burden will be on buyers and buyers will pay al the tax.

Graph 3 (Lower left) : Sellers pay all the tax

Explanation:

Since supply curve is perfectly inelastic, therefore, all the tax burden will be on sellers and sellers will pay al the tax.

Graph 4 (lower right) : Sellers pay majority of the tax

Explanation:

Since supply curve is less elastic than the demand curve, therefore, sellers will pay majority of tax