Question

14) The supply of roses is unit elastic and the demand for roses is elastic. If a tax is imposed on roses, who pays a larger part of the tax? A) Demanders pay a larger part of the tax. B) Suppliers pay a larger part of the tax. C) Demanders and suppliers pay equal amounts of the tax. D) More information is needed about whether the tax is imposed on buyers or sellers. E) More information is needed about the magnitude of the tax to determine if demanders or suppliers pay a larger part of a tax. 15) If a perfectly competitive market becomes a monopoly, then the producer ____ and consumers ____. A) is unaffected; are unaffected B) is unaffected; lose C) gains; gain D) gains; lose E) gains; are unaffected

Answer 1

When is inelsatic and the demand is elastic, suppliers will pay larger part of the tax. This is because even a small increase in prices may impact demand (which may go down fast considering it is elastic) and the supplier will end up with perishabel inventory (as the supply is inelastic). Therefore, to keep buyers, the suppliers will bear a major part of the tax. Optioin B is correct

If a perfectly comopetitively market becomes a monopoly, then the producer gains and the customer loses. Option D is correct