Homework 3:
Due Tuesday, Feb 15.
The demand was the same in all four rounds.
1. When the seller pays a *15 tax in the event of a sale, what happens to the seller's cost?
To a buyer's value?
2. When the buyer pays a *15 tax in the event of a sale, what happens to the buyer's value?
To a seller's cost?
3. Draw the supply (marginal cost) for experiment 1.1, and the demand. Add the supply curve
for experiment 1.2, where the seller paid a *15 tax.
4. Now repeat problem 3, but with experiments 1.1 and 1.4. (That is, draw the demand
for both experiments, and the supply).
5. Fill in this table:
1.1 1.2 1.3 1.4
Predicted
Quantity: ___ ___ ___ ___
Actual
Quantity: ___ ___ ___ ___
Predicted
Price Buyer
Pays: ___ ___ ___ ___
Actual Average
Price Buyer
Paid: ___ ___ ___ ___
Predicted
Price Seller
Gets: ___ ___ ___ ___
Actual Average
Price Seller
Gets: ___ ___ ___ ___
6. Does it matter if the tax is imposed on the buyer or the seller? Why, or why not?
7. If the elasticity of demand is 2, and the price goes up by 15%, what happens to
the quantity demanded?
8. Suppose the elasticity of demand is 2 and the elasticity of supply is 3. A tax of
10% is imposed. What happens to the buyer's price? The seller's price? Illustrate
your answer with a diagram.