The demand and supply of coffee are shown here, with an equilibrium price of $4 per pound and an equilibrium quantity of 4,000 pounds per week. Suppose the government offers $3 tax per p method, finding the new quantity and the prices faced by buyers and sellers. Polygon * Undo * Redo x Reset 10 5 3 2 10 Quantity of coffee per week, in thousands of pounds Price, S/pound
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When tax is imposed on the good, new equilibrium quantity decreases. Price received by sellers also decreases and price paid by buyers increases.
Tax wedge = price paid by buyers - price received by sellers.
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