Homework Answers
(9) tax indidence depicts tax distribution that the producer and buyer has to bear. tax incidence is based on elasticity of demand or supply. if supply is elastic than tax burden will be borne by buyer or if demand is elastic than tax burden borne by suppliers. in the above mentioned diagram tax burden is borne by buyer. as the supply is decrease due to tax imposition by government and increase in price also include tax burden borne by buyer. tax incidence on produce is Nil. it will shift on to buyer.
(10) revenue to government subject to condition if tax imposed by government per unit is 1.5 only
= (9.50-8.00 )* 20
= 1.5*20
=$30
** if price increases from 7.50 to 9.50 then tax would be $2.00/ unit
= 2.00*20
=$40
(11) government earn more revenue from good that have inelastic demand as higher tax will have less effect on demand due to reason more amount of tax burden will be shifted to consumr only. in this way goverment will earn more revenue from tax imposition.
when demand and supply is perfectly elastic it is identical to x axis.( Horizontal)
when demand and supply is perfectly inelstic it is identical to y axis (vertical)
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1-3
please
Feel free to use any spaces for scratch work. 1) Consider the excise tax lectured in class. For a given excise tax, we can correctly predict that consumer tax incidence will be less than producer tax incidence when: a) Both the demand and the supply curves are more inelastic. b) The demand curve is inelastic and the supply curve is elastie. c) The demand curve is elastic and the supply curve is inelastic. d) Both the demand and...
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