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Scenario:

Suppose a tax on beans of $0.05 per can is levied on the firms. As a consequence of the tax, the equilibrium price increases from the $0.20 to $0.22.

Required:

Problem 1: What fraction of incidence falls on consumers? On firms?

Problem 2: Assume the supply elasticity is 0.6. What should the demand elasticity be?

Macroeconomics, Economics

  • Category:- Macroeconomics
  • Reference No.:- M914057

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