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.

Question

Quizplus · Accepted Answer

The fraction of the tax passed on to consumers in the form of higher prices is Es/(Es-Ed). This is because the elasticity of supply measures the responsiveness of quantity supplied to a change in price, while the own price elasticity of demand measures the responsiveness of quantity demanded to a change in its own price. The fraction of the tax passed on to consumers is the ratio of the change in price to the change in quantity supplied, which is equal to Es/(Es-Ed).

Where Es Is the Elasticity of Supply and Ed Is