Question

Students are required to add the content to the following paragraph on the application of elasticity of demand. If a seller knows the price elasticity of demand of his product it helps him in deciding if he can raise its unit price to make up for the newly introduced 10% commodity tax. Depending upon the elasticity there are three possibilities; one, he can pass the entire tax burden on to the consumers, two, he can pass the burden only partially, and three, he cannot pass the burden at all and will have to bear it by reducing the profit margin

Answer 1

ans....
There are three applications shown
If he knows that the demand elasticity is 0, then he can pass the entire tax burden on to the consumers by increasing price by 10% because the demand is perfectly inelastic and the consumer will buy the same amount of good at any price.
If he knows that the demand is not perfectly inelastic or elastic. it is between 0 and infinity but not infinite. then he can only pass some of its tax burden on the consumer
If he knows that the demand is perfectly elastic then the seller knows that if he increases price then there is no demand so he has to decrease its profit and pay the tax.