Question

Show graphically and mathematically, who bears of the tax incidence when demand is perfectly elastic.

Show graphically and mathematically, who bears of the tax incidence when demand is perfectly elastic.

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

In above diagram, demand is perfectly elastic and horizontal straight line.

So tax, Decrease supply and shift supply to left and market reaches at new equilibrium point.

But at new equilibrium, market price is same as before.so

Consumer incidence of tax=0

Seller incidence of tax=100

Consumer incidence of tax=supply elasticity/(supply elasticity- demand elasticity)

Given demand is perfectly elastic,so demand elasticity= infinite or 1/0

.if we only put demand elasticity in above function,.

Consumer incidence=0

So seller incidence=100

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Tax incidence focuses on who: A) has the most elastic demand B) has the most inelastic...
Tax incidence focuses on who: A) has the most elastic demand B) has the most inelastic supply C) bears the economic burden of a tax D) bears the statutory or legal burden of a tax
1. Graphically, what does the demand curve look like when demand is perfectly elastic? When it...
1. Graphically, what does the demand curve look like when demand is perfectly elastic? When it is perfectly inelastic? 2. What is the relationship--if there is one--between the price elasticity of demand and the slope of the demand curve? 3. In the context of elasticity, how can goods be classified as "substitutes," "complements," or "independent goods?" (Hint: think about this in terms of the number values used to define elasticity.)
2. Suppose supply is perfectly inelastic and demand is relatively elastic. Who bear all the tax...
2. Suppose supply is perfectly inelastic and demand is relatively elastic. Who bear all the tax burden, buyers or sellers? Explain in details. 3. Suppose demand for electricity is inelastic, but not perfectly. A sales tax is imposed, and the tax is levied on buyers. Draw a graph to show the effects of the tax. Indicate CS, PS, tax revenue and DWL after tax on your graph.
Who pays the tax when demand is elastic?
Who pays the tax when demand is elastic?
4. If Supply and Demand have the normal shapes (not perfectly elastic or inelastic), a "tax...
4. If Supply and Demand have the normal shapes (not perfectly elastic or inelastic), a "tax on sellers" (as defined by Mankiw) will shift demand upward by less than the amount of the tax, and equlibrium posted price will increase by the same amound as the tax.   True or False? 6. If Supply and Demand have the normal shapes (not perfectly elastic or inelastic), a "tax on sellers" (as defined by Mankiw) will shift demand upward by the amount of...
What is perfectly elastic demand/supply? Draw a graph to represent perfectly elastic demand/supply. What is perfectly...
What is perfectly elastic demand/supply? Draw a graph to represent perfectly elastic demand/supply. What is perfectly inelastic demand/supply? Draw a graph to represent perfectly elastic demand/supply. When the price of t-shirts increases by 12 percent, the quantity of t-shirts demanded falls by 20 percent. Calculate the price elasticity of demand. Is the demand for t-shirts elastic, inelastic, or unit elastic? When the price of t-shirts falls by 30 percent, the quantity of t-shirts supplied decreases by 20 percent. Calculate the...
What is perfectly elastic demand/supply? Draw a graph to represent perfectly elastic demand/supply. What is perfectly...
What is perfectly elastic demand/supply? Draw a graph to represent perfectly elastic demand/supply. What is perfectly inelastic demand/supply? Draw a graph to represent perfectly elastic demand/supply.
When the price is ​$66 a​ unit, demand is perfectly elastic. Draw the demand curve for...
When the price is ​$66 a​ unit, demand is perfectly elastic. Draw the demand curve for this good. Label it D1.     When the quantity demanded is 99 million units a​ year, demand is perfectly inelastic. Draw the demand curve for this good. Label it D2.     When the price is ​$1212 a​ unit, the quantity demanded is 33 million units a​ year, and demand is unit elastic. Draw the demand curve for this good. Label it D3.
A province has a few gold mines that face perfectly elastic demand for their output at...
A province has a few gold mines that face perfectly elastic demand for their output at the World Price for gold. If the province applied a royalty (tax) on their output of $500 per ounce, their supply curve would shift. Draw a supply/demand model with perfectly elastic demand at the World Price and show the change (shift) in the mining industry’s supply curve. In the supply/demand model/diagram, show the net price that the gold mining industry will now receive (World...
1) Tax incidences are majorly affected by the elasticity of demand and elasticity of supply. Using...
1) Tax incidences are majorly affected by the elasticity of demand and elasticity of supply. Using the partial equilibrium illustrate the tax incidence of a unit tax when Demand curve and supply curve are fairly elastic When demand curve is perfectly elastic and supply curve is fairly elastic When supply curve is perfectly inelastic and demand curve is fairly elastic 2) Discuss any four factors that affect the shift of tax burden
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT