question archive If a tax of 72 cents is put on a unit and the price was initially $2 with the elasticity of demand = -0
If a tax of 72 cents is put on a unit and the price was initially $2 with the elasticity of demand = -0
Subject:EconomicsPrice:2.88 Bought3
If a tax of 72 cents is put on a unit and the price was initially $2 with the elasticity of demand = -0.5 while the elasticity of supply is 2.0, what will happen to the price of the unit paid by consumers?
Purchase A New Answer
Custom new solution created by our subject matter experts
GET A QUOTE
Answer Preview
Tax burden on Consumer = (Elasticity of supply/(Elasticity of supply-Elasticity of demand))*100
= (2/(2-(-0.5))*100
= 80%
Tax burden on producer = 100 -80 =20%
Tax borne by consumer = 0.72*80%=0.576
Price of unit paid by consumer = 2+0.576 =$2.576
