Effect of Tax on the Selling of Apples in a Small Scale Assignment

Effect of Tax on the Selling of Apples in a Small Scale - Assignment Example This scenario takes two rounds or instances of selling and the supplier’s interest are the amount of profit. According to the data, in round 1 the supplier sold a bushel of apples at $10 and the second round at $19. The formula to calculate profit is: In the second set of data, session #1 has apples sold for every unit from 1 to 20. The indication is that the demand for the apples is high when there is no tax charged during the buying and selling of the apples. The demand for the apples in the experiment is less elastic than the supply. In the second session, the supplier bears the tax burden. In the experiment, the apple supplier still has a seller cost of $18 for a bushel of apples. Above the seller cost, the supplier must pay a sales tax of $15. However, if the seller does not sell any apples, he does not pay either seller cost or sales tax. From the record of prices and profits, the supplier never sold a bushel of apples in either round 1 or 2 showing a significant decline in the profits to zero when the supplier pays the tax. From the second data set, session #2 indicates a drop in the supply of the apples. In the first 14 units sold, the sellers supply pattern indicates some increase in volumes of the sales of apple. On the other hand, from 15 to 20 units, the seller never sold any apples due to the high costs from taxes. The tax burden shifts to buyers in the third session. The supplier of apples in the first set of data does not sell any apples due to drop in demand since the buyers deter from buying. In the second data set, the buyers could still afford the bushel of apples for up to 12 units sold. From 13 to 20 units, the supplier does not sell any apples. This experiment uses a method of comparative statistics to analyze the effect of the tax on demand and supply. The economic theory that comes into play in this scenario is the optimal tax theory. This theory  suggests the best way to affect taxation with minimal distortion of the demand and supply. According to this theory, the sales tax imposed on suppliers and buyers has the same effect; reducing the demand and supply.