Question

What percentage of a tax will the demander pay if price elasticity of supply is 0.3 and price elasticity of demand is 0.7? What percentage will the supplier pay?

Answer 1

The correct answer is: 70%.

Step-by-step explanation:

According to the information in the case:

• Price elasticity of supply: 0.3
• Price elasticity of demand: 0.7

The percentage of the tax burden on the supplier is calculated in the following way:

`Tax burden on the supplier = (Elasticity of demand)/(Elasticity of supply + Elasticity of demand) x 100`

`Tax burden on the supplier = (0.7)/(0.3 + 0.7) x 100 = 70`

Therefore, the tax burden on the supplier is 70%.