Exhibit 20-6 -Refer to Exhibit 20-6.Let S₁ be the supply curve of a producer.If S₂ is the supply curve of the same producer after the government imposes a per-unit tax,the share of the tax paid by the producer as compared to the share of the tax paid by consumers will be A) greater if D₁ is the demand curve facing the producer. B) greater if D₂ is the demand curve facing the producer. C) the same regardless of which demand curve the firm faces. D) Any of the above, depending on the type of good the tax is imposed on.

Question

Quizplus · Accepted Answer

When a per-unit tax is imposed, the supply curve shifts upward by the amount of the tax. The share of the tax paid by the producer and the share paid by consumers depends on the elasticity of demand and supply. If demand is more elastic than supply, then consumers will bear a greater share of the tax burden. If supply is more elastic than demand, then producers will bear a greater share of the tax burden. Therefore, the share of the tax paid by the producer will be greater if D₂ is the demand curve facing the producer, as this curve is more elastic than D₁.

Exhibit 20-6 -Refer to Exhibit 20-6.Let S1 Be the Supply Curve of the Supply

Exhibit 20-6 -Refer to Exhibit 20-6.Let S₁ Be the Supply Curve of the Supply