Question

An article indicates that an airline ticket tax was temporarily suspended for a short period of time and that this temporary lapse has resulted in a windfall profit for most airlines because there was little price adjustment. Draw a set of 4 supply and demand graphs to represent extreme cases, where every graph has a tax on in a way that you can see how much of the tax’s incidence falls on consumers versus that of producers. These four graphs should be:

Graph A: Very elastic demand; very inelastic supply.

Graph B: Very elastic demand, very elastic supply.

Graph C: Very inelastic demand; very inelastic supply.

Graph D: Very inelastic demand; very elastic supply.

**graphing is not hard to get but just how to put the tax...

Answer 1

on the buyers of Ain line ticket ton is in posed airline industry Graph A very elastic demand o vny in clastic supply supply curve Hue, demand cance will be relatively flatly and demand will be relatively steepu. o f supply La -> Q Hue the pre-tan Price is po . Now after the tan, Demand are will shift leftwand from Di to Dz. Now aftu tan equilibuum pice is Ps which is the price received E by the seller af tu imposition of tan. And Pb is the Pice that buyns pay afto the imposition of face. The as supply cave is very in clastic, hence Sellers pay the higher burden of the tanie. (Po-Pg) and as demand is to latte or elastic, buyns bear low share of the I binden of the tau lie. (Po-Pol. CS Scanned with CamScanner

Graph B i very elastic demand very elastic supply Hue both demand and supply (mun will be flatte to and the demand cauc will shift left wund from Di D2 AP supply Tan - - azt Qi Hue due to imposition of the tan on buyers, after fan buyns pay Pb and incidence of tan on buyns - 1 Pb-pol and af tu tau sellus receive ps and incidence of tau on selles = (Po-Ps). Hue as both demand and supply canus are vay clastic hence both sellus and buyns & share the burden of the tan equally Scanned with CamScanner

araphac vay inclastic demand, way in elastic supply the both demand and supply caves will be relatively Steepu and due to the imposition of tau, Demand couc shifts left word from Di to Dz . supply з, толь V No lai the due to the in be buyus pay pl = (Pb-Po) and atta >Q due to the impositon of tan on buyns, af to tan us pay pb and incidence of tan on buyus ip. Pol and af tutan Sellers receive ps and ence of tan on selles = (Po-Ps) . Hunce as booth demand and supply caves are very inclastic, hence both sellas tan share and buyus the bunden of the inadece Scanned with CamScanner

wapho Curabhip vay in elastic demand, vay elastic Hue demand Supp demand canul will be relatively steeps and suppy mve will be relatively flatty and afth the impos of tom bug demand cure will shift left waad from Di to Dz. enue wil - ab to the imposition Taw > Q Q1 the due to the imposition of tan on buyns, afts tan huyns Pay Pb and incidence of tan on buyns will be a (Pb-Po] and sellers receive Ps and incidence of tan on sellers = (Po-Ps). Hue as Demand Cunus i relatively ein elastic or steeps ; buyns bear most of the burden of the fan and as supply is relatively elastic or flatte, sellus beau only a small part of the tau Scanned with CamScanner