TOPIC: Government Intervention Question 1) How does elasticity affect the incidence (burden) of a tax on goods and services?

TOPIC: Government Intervention

Question

1) How does elasticity affect the incidence (burden) of a tax on goods and services? Specifically, model and discuss the following two situations: one where demand is relatively more elastic than supply, and the other where demand is relatively less elastic than supply. In your discussion of these two situations, pay particular attention to:

a. The change in the price paid by consumers, and the price received by producers when a tax is imposed;

b. The revenue raised by the government;

c. The change in surplus, and any associated deadweight losses.