If the elasticity of supply is 1, and the elasticity of demand is 3(in absolute value), then for a tax of $1 buyers will pay:
A)an extra 25 cents and sellers will receive 75 cents less.(True Answer )Correct
B)an extra 75 cents and sellers will receive 25 cents less.
C)an extra 50 cents and sellers will receive 50 cents less.
D)nothing extra since this is the special case where demand is unit elastic.

Question

Quizplus · Accepted Answer

When the elasticity of supply is 1 and the elasticity of demand is 3 (in absolute value), the burden of the tax will be shared more by the buyers. This means that buyers will pay an extra 25 cents and sellers will receive 75 cents less. This is because when demand is more elastic than supply, consumers can more easily find substitutes for the taxed good and thus are less willing to pay a higher price for it. Therefore, the seller must lower their price to incentivize buyers to continue purchasing the good, resulting in the seller receiving a lower amount of revenue.

If the Elasticity of Supply Is 1, and the Elasticity