Question

In the scenario of King Kanuta ruling Nutting Atoll, where the supply of coconuts is given by

)
S(P
S​
), what economic concept does King Kanuta's coconut policy represent?
a) Price elasticity of demand
b) Deadweight loss
c) Price ceiling
d) Tax incidence
e) Rnt-seeking

Answer 1

King Kanuta's coconut policy represents the economic concept of tax incidence, where a tax creates a differential between the price paid by consumers and the price received by producers, depending on the elasticity of supply and demand.

Step-by-step explanation:

KIng Kanuta's coconut policy in Nutting Atoll, as described in the scenario where supply is inelastic and demand is elastic, illustrates the economic concept of tax incidence. When a tax is introduced by the government, it creates a wedge between the price consumers pay (Pc) and the price producers receive (Pp). The buyers are paying a higher price due to the tax, while sellers are receiving a lower price because the tax is effectively another cost of production for them. If the supply is inelastic, producers cannot easily change their quantity supplied, hence a larger portion of the tax burden falls on them.

Thus, the concept demonstrated by King Kanuta's policy is not price elasticity of demand, deadweight loss, price ceiling, or rent-seeking—it is tax incidence, which reflects how the burden of a tax is distributed between consumers and producers in a market. The crucial point here is that the elasticity of demand and supply determines how the tax burden is split between the market participants.