The price elasticity of demand is –1.5, and the share of the tax borne by consumers...

Question

Question

The price elasticity of demand is –1.5, and the share of the tax borne by consumers is 0.60. What is the price elasticity of supply?

business economics

Answer 1

Answer #1

Option 3. 2.25

Explanation:

The tax burden on consumer = Elasticity of supply/ (Elasticity of demand + Elasticity of supply)

0.60 = Elasticity of supply/(1.5 + Elasticity of supply)

0.60 *(1.5) + 0.60*elasticity of supply = Elasticity of supply

or, 0.90 = Elasticity of supply - 0.60*elasticity of supply

or, 0.90 = 0.40 * elasticity of supply

or, Elasticity of supply = 0.90/0.40 = 2.25

Answer 2

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