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What percentage of a tax will the demander pay if price elasticity of supply is 0.3 and price elasticity of demand is 0.7? What percentage will the supplier pay?

Respuesta :

Answer:

The correct answer is: 70%.

Explanation:

According to the information in the case:

  • Price elasticity of supply: 0.3
  • Price elasticity of demand: 0.7

The percentage of the tax burden on the supplier is calculated in the following way:

[tex]Tax burden on the supplier = \frac{Elasticity of demand}{Elasticity of supply + Elasticity of demand} x 100[/tex]

[tex]Tax burden on the supplier = \frac{0.7}{0.3 + 0.7} x 100 = 70[/tex]

Therefore, the tax burden on the supplier is 70%.

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