Answer :
a. The percentage incurred by the demander is 80%; the percentage borne by the supplier is 20%. The tax incidence is different for different situations.
Consumer tax incidence = 100 × (Es / (Ed + Es))
Producer tax incidence = 100 × (Ed / (Ed + Es))
a. Ed = 0.3
Es = 1.2
Tax borne by demander = 100 × (1.2 / (0.3 + 1.2))
= 100 × 1.2/1.5
= 80%
Tax borne by supplier = 100 × (0.3 / (0.3 + 1.2))
= 100 × 0.3/1.5
= 20%
b) Ed = 3
Es = 2
Tax borne by demander = 100 × (2 / (3 + 2))
= 100 × 2/5
= 40%
Tax borne by supplier = 100 × (3 / (3 + 2))
= 100 × 3/5
= 60%
c) Ed = 0.5
Es = 1
Tax borne by demander = 100 × (1 / (0.5+01))
= 100 × 1/1.5
= 67%
Tax borne by supplier = 100 × (0.5 / (0.5 + 1))
= 100 × 0.5/1
= 33%
d) Ed = 0.5
Es = 0.5
Tax borne by demander = 100 × (0.5 / (0.5 + 0.5))
= 100 × 0.5/1
= 50%
Tax borne by supplier = 100 × (0.5 / (0.5 + 0.5))
= 100 × 0.5/1
= 50%
e) Consumers with more elastic demand curves pay a lower percentage of the tax. The same can be said for producers.
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