Consider the market for laptop computers Suppose that market

Consider the market for laptop computers. Suppose that market demand for Apple Mac Laptops is given by Q^D = 1.000 - (3/2)P and market supply is given by Q^S = P where P is the price per Apple Mac laptop. The market was in equilibrium. Microsoft somehow manages to lobby the government to suddenly impose a tax on Apple Macs at $40 per laptop. The result is that purchasers of Macs bear all the economic price incidence of the tax. purchasers of Macs will only bear the economic price incidence of the tax if the government collects the tax revenue directly from them. the government will collect no tax revenue at all from this tax. purchasers of Macs and Mac suppliers will equally share the economic price incidence of the tax. E. purchasers of Macs bear relatively less of the economic price incidence of the tax as compared to the manufacturer of Macs.

Solution

Correct option (E).

The demand function is downward sloping, but supply curve is horizontal at price P. This means that supply is perfectly elastic but demand is imperfectly elastic.

In such a situation, consumers bear relatively lower amount of tax incidence than the sellers.

Tutor\'s Note: You don\'t need to solve for demand & supply for equilibrium P & Q. The shapes of demand & supply curves are sufficient to answer the question.