Final answer:
A tax imposed on buyers results in a leftward shift of the demand curve, leading to consumers paying higher prices, producers receiving lower prices, and changes in the market equilibrium quantity. The tax creates a gap between the price consumers pay and the price producers receive, and the tax incidence often falls on sellers when supply is inelastic.
Step-by-step explanation:
A tax imposed on buyers shifts the demand curve to the left because a portion of the price of the good pays for the tax. The implementation of a tax creates a wedge between the price consumers pay (Pc) and the price producers receive (Pp), with the tax rate being the distance between these two prices. When a tax is viewed as increasing production costs, this is similarly depicted by a leftward shift of the supply curve. However, to simplify our case, let's focus on the demand side. The ultimate impact is an alteration in the market equilibrium: consumers face higher prices, producers receive less, and the quantity sold (Qt) adjusts accordingly. In markets where demand is elastic, as with beachfront hotels, and supply is inelastic, the tax incidence tends to fall more significantly on sellers, affecting the price they receive without much flexibility to adjust quantities. The shaded area represents the tax revenue, which is product of the tax per unit and the total quantity sold Qt; in such a market setup, tax incidence, or who bears the tax burden, can be analyzed by comparing how much more consumers are paying (Pc) versus what producers are receiving (Pp) after the tax is applied.