Question

Where Es is the elasticity of supply and Ed is the own price elasticity of demand, the fraction of the

tax passed on to consumers in the form of higher prices is

A) Es/(Es-Ed).

B) Ed/(Es-Ed).

C) Es/(Ed-Es).

D) Ed/(Ed-Es).

E) Ed/Es.

Answer 1

y

Step-by-step explanation:

Answer 2

The correct option is A.

Step-by-step explanation:

Elasticity of supply: It is the ratio of proportionate change in the quantity supplied to the proportionate change in price.

Elasticity of demand: It is the ratio of proportionate change in the quantity demanded to its price change.

Let as consider Es is the elasticity of supply and Ed is the own price elasticity of demand.

The fraction of the tax passed on to consumers in the form of higher prices is the ratio of elasticity of supply and difference between elasticity of supply and elasticity of demand.

The required fraction is

`(E_s)/(E_s-E_d)`

Therefore the correct option is A.