Question
2. You are shown that you can calculate tax incidence for consumers using P = where is the own price elasticity of supply and is
2. You are shown that you can calculate tax incidence for consumers using P = where is the own price elasticity of supply and is the own price elasticity of demand. Use this information to to explain what happens to the tax incidence for consumers when there is a $1 specific tax put into place. Additionally provide a graph illustrating what happens to the equilibrium price and quantity, given the following are true (note: if not a the curve is perfectly elastic or inelastic, assume it is neither perfectly elastic nor perfectly inelastic):
a. The demand curve is perfectly inelastic.
b. The demand curve is perfectly elastic.
c. The supply curve is perfectly inelastic.
d. The supply curve is perfectly elastic.
Note: Formula for P / has been updated to reflect the correct formula.
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