Author Question: Suppose the market for grass seed is expressed as Demand: QD = 100 - 2p Supply: QS = 3p Price ... (Read 135 times)

melina_rosy

  • Hero Member
  • *****
  • Posts: 531
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?

Question 2

Tax preferences create more _____ than a broad-based income tax because they change the relative prices to the taxpayer of earning different types of income.
 
  a. welfare loss
  b. benefits
  c. taxable income
   d. tax avoidance



princessflame2016

  • Sr. Member
  • ****
  • Posts: 298
Answer to Question 1

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.

Answer to Question 2

a



Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
 

Did you know?

Of the estimated 2 million heroin users in the United States, 600,000–800,000 are considered hardcore addicts. Heroin addiction is considered to be one of the hardest addictions to recover from.

Did you know?

A good example of polar molecules can be understood when trying to make a cake. If water and oil are required, they will not mix together. If you put them into a measuring cup, the oil will rise to the top while the water remains on the bottom.

Did you know?

Individuals are never “cured” of addictions. Instead, they learn how to manage their disease to lead healthy, balanced lives.

Did you know?

Approximately one in four people diagnosed with diabetes will develop foot problems. Of these, about one-third will require lower extremity amputation.

Did you know?

Children with strabismus (crossed eyes) can be treated. They are not able to outgrow this condition on their own, but with help, it can be more easily corrected at a younger age. It is important for infants to have eye examinations as early as possible in their development and then another at age 2 years.

For a complete list of videos, visit our video library