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Mairoon Mairoon
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6 years ago
Suppose the market for grass seed is expressed as

Demand: QD = 100 - 2p
Supply: QS = 3p

Price elasticity of supply is constant at 1. If the supply curve is changed to Q = 8p, price elasticity of supply is still constant at 1. Yet, with the new supply curve, consumers pay a larger share of a specific tax. Why?
Textbook 
Microeconomics

Microeconomics


Edition: 6th
Author:
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Replies
wrote...
#1
6 years ago
Even though the elasticity of supply has not changed, the new supply curve intersects the old demand curve at a lower price where demand is relatively less elastic than at the higher price. Since the incidence of a specific tax on consumers is n/(n - e), where n is the price elasticity of supply and e is the price elasticity of demand, therefore when e increases (less elastic demand), the consumers' tax incidence is higher.
Mairoon Author
wrote...
#2
5 years ago
Thanks. This is just start. Wink Face
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