**Question 3**At a given market price, suppose the elasticity of demand is -2.2 and the elasticity of supply is +0.5. Then a tax is imposed on consumers. Which group (consumers or firms) will pay a larger portion of the tax incidence? Explain why.**Explanation:**The tax incidence, or the distribution of the tax burden between consumers and firms, depends on the relative elasticities of demand and supply. The group (consumers or firms) that is less elastic (i.e., has a smaller absolute value of elasticity) will bear a larger burden of the tax.In this scenario, the elasticity of demand is -2.2, and the elasticity of supply is +0.5. The absolute value of the elasticity of demand is greater than the elasticity of supply (2.2 > 0.5), meaning that demand is more elastic than supply.Therefore, because supply is less elastic, firms will pay a larger portion of the tax incidence than consumers. The less elastic side of the market is less responsive to price changes and thus bears more of the tax burden.

Answered: Question 3 social cost At a given…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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The elasticity of demand refers to the responsiveness of quantity demand of a commodity due to a change in its price. On the other hand, the elasticity of supply refers to the responsiveness of the quantity supplied of a commodity due to a change in its price.

The imposition of tax by the government leads to an increase in the price of commodities. This creates a burden of a higher price on the consumers or a higher cost of production on the producers or both. The burden created on the consumers or producers or both is known as tax incidence.

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