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4. Briefly explain the relationship between elasticity and tax incidence by drawing graphs and write down...

4. Briefly explain the relationship between elasticity and tax incidence by drawing graphs and write down the key result from this analysis.

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Answer #1

Tax incidence is independent , on fact whether it is imposed on sellers or buyers.

If supply(demand) is perfectly elastic ,then entire tax burden is shared by only buyers(sellers)

If supply(demand) is perfectly inelastic, then full tax burden born by sellers ( buyers)only .

If both supply Demand curves have same elasticity, then both share tax burden equally .

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