Question about Economics 2022

Running head: ECONOMICS
Economics
Name of the Student
Name of the University
Course ID

ECONOMICS1
Table of Contents
Question 3........................................................................................................................................2
Question a....................................................................................................................................2
Question b....................................................................................................................................3
References........................................................................................................................................5

ECONOMICS2
Question 3
Question a
Division of burden of taxation is subject to elasticity associated with demand and supply
side. Elasticity of demand measures magnitude of changes in demand because of a change in
price. Elasticity of supply on the other hand estimates the magnitude of changes in supply due to
change in price. When a tax is imposed on a good buyers have to a pay a high price where sellers
receive a lower price (Cowell). Now, sharing of the burden depends upon the flexibility of
supply and demand change. In case very elastic supply and very inelastic demand the burden on
buyers is far greater than the burden on seller as described in the figure below.
Figure 1: Tax with inelastic demand and elastic supply
The elastic supply curve of rubber band is shown as SS. The inelastic demand curve is
shown as DD. Before tax, E describes free market equilibrium in the market. Correspond to E,
equilibrium price is P* and that of equilibrium quantity is Q*. Respective consumer and