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Scenario: The Market for Good X:
The market for good X can be depicted with the following demand and supply equations:
Demand: P = 50 - 0.5Q
Supply: P = 0.33Q
where P is price per unit and Q represents quantity in units. Policy makers plan on imposing a $1 per unit tax on this good.
-(Scenario: The Market for Good X) Look at the scenario The Market for Good X. The per-unit tax incidence on consumers is equal to:

Question

Quizplus · Accepted Answer

The tax incidence on consumers is determined by the relative elasticities of demand and supply. The demand curve is more inelastic than the supply curve, so consumers bear a larger share of the tax. The exact incidence can be calculated using the slopes of the demand and supply curves, resulting in $0.60 for consumers.

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