High School

Sketching Questions: Externalities and Tax Incidence

1. Sketch a supply and demand framework for paved driveways. Who do you suppose is less elastic, consumers or sellers? Be sure your model reflects this (there are no wrong choices of who is less elastic; just take your pick if you don’t have a good idea).

Answer :

Final Answer:

Consumers are likely less elastic than sellers in the context of paved driveways.

Explanation:

In the supply and demand framework for paved driveways, the elasticity of consumers and sellers plays a significant role in determining the tax incidence and how it affects the equilibrium price and quantity. Elasticity measures the responsiveness of quantity demanded or supplied to changes in price.

When considering paved driveways, consumers are likely to be less elastic than sellers. This means that changes in price have a relatively smaller impact on consumer demand compared to the responsiveness of sellers' willingness to supply.

Paved driveways are often considered a long-term investment, and consumers may not immediately alter their demand due to small price fluctuations. On the other hand, sellers, such as construction companies or contractors, might be more responsive to changes in price as they compete for contracts and projects.

This difference in elasticity affects tax incidence. If a tax is imposed on paved driveways, the burden of the tax is likely to be borne more by consumers than by sellers, given consumers' relatively less elastic demand. The equilibrium price might not change significantly, but the quantity demanded could decrease more moderately, placing a larger share of the tax burden on consumers.

In essence, the elasticity of consumers and sellers in the context of paved driveways can impact how taxes are distributed between the two groups. Understanding this elasticity helps in predicting how changes in price, due to taxes or other factors, will influence the market. This insight is crucial for policymakers and businesses to anticipate market outcomes accurately.

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Final Answer:

Consumers are likely less elastic than sellers in the context of paved driveways.

Explanation:

In the supply and demand framework for paved driveways, the elasticity of consumers and sellers plays a significant role in determining the tax incidence and how it affects the equilibrium price and quantity. Elasticity measures the responsiveness of quantity demanded or supplied to changes in price.

When considering paved driveways, consumers are likely to be less elastic than sellers. This means that changes in price have a relatively smaller impact on consumer demand compared to the responsiveness of sellers' willingness to supply.

Paved driveways are often considered a long-term investment, and consumers may not immediately alter their demand due to small price fluctuations. On the other hand, sellers, such as construction companies or contractors, might be more responsive to changes in price as they compete for contracts and projects.

This difference in elasticity affects tax incidence. If a tax is imposed on paved driveways, the burden of the tax is likely to be borne more by consumers than by sellers, given consumers' relatively less elastic demand. The equilibrium price might not change significantly, but the quantity demanded could decrease more moderately, placing a larger share of the tax burden on consumers.

In essence, the elasticity of consumers and sellers in the context of paved driveways can impact how taxes are distributed between the two groups. Understanding this elasticity helps in predicting how changes in price, due to taxes or other factors, will influence the market. This insight is crucial for policymakers and businesses to anticipate market outcomes accurately.

Learn more about Context

brainly.com/question/29075213

#SPJ11