ECONOMICS
ECONOMICS
11th Edition
ISBN: 9781264367924
Author: Colander
Publisher: MCG
Question
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Chapter 7, Problem 14QE

(a)

To determine

Determine the percentage of tax borne by a demander and supplier if Es is 1.2 and ED is 0.3.

(a)

Expert Solution
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Explanation of Solution

If the elasticity of demand is 0.3 and elasticity of supply is 1.2, then the percentage of tax borne by a demander and a supplier is as follows:

Percentage of tax borne by demander=(ES(ES+ED)×100)=(1.2(1.2+0.3)×100)=80

Thus, the percentage of tax borne by a demander is 80.

Percentage of tax borne by supplier=(ED(ES+ED)×100)=(0.3(1.2+0.3)×100)=20

Thus, the percentage of tax borne by a supplier is 20.

(b)

To determine

Determine the percentage of tax borne by a demander and a supplier if Es is 2 an ED is 3.

(b)

Expert Solution
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Explanation of Solution

If the elasticity of demand is 3 and elasticity of supply is 2, then the percentage of tax borne by a demander and a supplier can be calculated as follows:

Percentage of tax borne by demander=(ES(ES+ED)×100)=(2(2+3)×100)=40

Thus, the percentage of tax borne by a demander is 40.

Percentage of tax borne by supplier=(ED(ES+ED)×100)=(3(2+3)×100)=60

Thus, the percentage of tax borne by a supplier is 60.

(c)

To determine

Determine the percentage of tax borne by a demander and supplier if Es is 1 and ED is 0.5.

(c)

Expert Solution
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Explanation of Solution

If the elasticity of demand is 0.5 and elasticity of supply is 1, then the percentage of tax borne by a demander and supplier can be calculated as follows:

Percentage of tax borne by demander=(ES(ES+ED)×100)=(1(1+0.5)×100)=66.67

Thus, the percentage of tax borne by a demander is 66.67.

Percentage of tax borne by supplier=(ED(ES+ED)×100)=(0.5(1+0.5)×100)=33.33

Thus, the percentage of tax borne by a supplier is 33.33.

(c)

To determine

Determine the percentage of tax borne by a demander and supplier if Es is 1 an ED is 0.5.

(c)

Expert Solution
Check Mark

Explanation of Solution

If the elasticity of demand is 0.5 and elasticity of supply is 1, then the percentage of tax borne by a demander and supplier can be calculated as follows:

Percentage of tax borne by demander=(ES(ES+ED)×100)=(1(1+0.5)×100)=66.67

Thus, the percentage of tax borne by a demander is 66.67.

Percentage of tax borne by supplier=(ED(ES+ED)×100)=(0.5(1+0.5)×100)=33.33

Thus, the percentage of tax borne by a supplier is 33.33.

(d)

To determine

Determine the percentage of tax borne by a demander and a supplier if Es is 0.5 and ED is 0.5.

(d)

Expert Solution
Check Mark

Explanation of Solution

If the elasticity of demand is 0.5 and elasticity of supply is 0.5, then the percentage of tax borne by a demander and a supplier can be calculated as follows:

Percentage of tax borne by demander=(ES(ES+ED)×100)=(0.5(0.5+0.5)×100)=50

Thus, the percentage of tax borne by a demander is 50.

Percentage of tax borne by supplier=(ED(ES+ED)×100)=(0.5(0.5+0.5)×100)=50

Thus, the percentage of tax borne by a supplier is 50.

(e)

To determine

Explain the finding regarding relative elasticity and tax burden.

(e)

Expert Solution
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Explanation of Solution

Here, the consumers with relatively more elastic demand curve will bear a smaller percentage of the tax. Thus, if the elasticity of demand curves and supply curves eas equal, then the consumer and producer share the tax burden evenly.

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