Pearson eText Microeconomics -- Access Card
Pearson eText Microeconomics -- Access Card
2nd Edition
ISBN: 9780136849513
Author: Acemoglu, Daron, Laibson, David, List, John
Publisher: PEARSON
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Chapter 10, Problem 15Q
To determine

Effect of price elasticity of demand on deadweight loss.

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Suppose the market for cigarette is competitive. An economist estimates the price elasticity of demand and supply for cigarette are -0.8 and 0.7 respectively. Suppose the government imposes a per-unit tax on the cigarette sellers. Who, buyers or sellers, would share a heavier tax burden? Explain your answers without calculation.
Would consumer or producer carry the burden of tax if good is elastic? Show on a graph
The following graph shows the daily market for wine. Suppose the government institutes a tax of $23.20 per bottle. This places a wedge between the price buyers pay and the price sellers receive.   Fill in the following table with the quantity sold, the price buyers pay, and the price sellers receive before and after the tax.   Using the data you entered in the previous table, calculate the tax burden that falls on buyers and on sellers, respectively, and calculate the price elasticity of demand and supply over the relevant ranges using the midpoint method. Enter your results in the following table.   The burden of the tax falls more heavily on the ___ elastic side of the market.
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