Author Question: How does the elasticity of supply influence the incidence of a tax, the quantity bought, the tax ... (Read 41 times)

K@

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How does the elasticity of supply influence the incidence of a tax, the quantity bought, the tax revenue, and the deadweight loss?
 
  What will be an ideal response?

Question 2

Comment on the following statement: Even though the supply of land is perfectly inelastic, the supply of land in a given use may not be fixed.
 
  What will be an ideal response?



tashiedavis420

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Answer to Question 1

The more elastic the supply for a given demand the larger the increase in the price paid by the buyers and the smaller the decrease in the price received by the sellers, which means that the incidence on buyers is larger. Additionally, the more elastic the supply, the smaller the quantity bought so the smaller the tax revenue and the larger the deadweight loss.

Answer to Question 2

The statement is true. When the value of land in one use increases, individuals using land for other purposes may sell their land for the alternative use. For example, if housing developers become more willing to pay for land on which to build new subdivisions, farmers may be willing to give up farmland for the higher price. This increases the supply of land available for housing and lowers the supply of land available for farming.



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