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ECON問題(ECON高手請入)

(1).why producers will bear all of the tax burden when the price elasticity of supply is 0?

(2).why consumers will bear all of the tax burden when the price elasticity of supply is ∞?

(3).why producers will enjoy all the subsidy benefit when the price elasticity of supply is 0?

(4).why consumers will enjoy all the subsidy benefit when the price elasticity of supply is∞?

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1 Answer

Rating
  • Divine
    Lv 4
    1 decade ago
    Favorite Answer

    The rule: When there is a tax burden or a subsidy, the supply curve will shift upward or downward. This is because we assume that the tax / subsidy will be paid / received by the producers.

    DO NOT SHIFT THE DEMAND CURVE. This is a common mistake.

    Remember that consumers bear tax burden by the increase in price. If there is no price increase, consumers don't bear tax burden.

    (1) When price elasticity of supply is zero, supply curve is a vertical straight line. When a tax is imposed, the supply curve shifts upward, but since it is vertical, it makes no difference. The equilibrium quantity and price is still the same as before. As the producer now has to pay the tax with no increase in price, the producer bears all tax burden.

    (2) Supply curve is a horizontal straight line

    The supply curve shifts upward by the amount of tax. As price increases by this amount, the consumers bear all tax.

    (3) Supply curve is a vertical straight line

    (4) Supply curve is a horizontal straight line.

    These two cases are similar to (1) & (2), except that the supply curve now shifts downward.

    Source(s): 5 years of studying Economics
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