Question

Consider the market for rubber bands. The following graphs give two different examples of possible demand and supply curves in this market. Use the graphs to help you answer the following questions. You will not be graded on any changes you make to these graphs. Graph 1 Demand Tax Wedge Supply Area Price of Rubber Bands 0 90 100 10 20 80 30 40 50 60 70 Quantity of Rubber Bands

first & third drop down options: Graph 1 / Graph 2

second and fourth drop down options: buyers / sellers

Answer 1

Ans:  Graph 2 depicts a market for rubber bands that has very inelastic supply and very elastic demand. In this market , the burden of a tax on rubber bands will fall more heavily on sellers.

Ans:  Graph 1 depicts a market for rubber bands that has very elastic supply and very inelastic demand. In this market , the burden of a tax on rubber bands will fall more heavily on buyers

Explanation:

When the supply is inelastic then the supply curve will become steeper in shape . It is depicted on graph 2. When the supply is inelastic and demand is elastic then more burden of tax will fall heavily on seller than the buyers.

When the supply is elastic then the supply curve will become flatter in shape. It is depicted on graph 1. When the supply is elastic and demand is inelastic then more burden of tax will fall heavily on buyer than the sellers..

Answer 2

Graph 1 depicts a market for runner bands that has a very elastic supply and very inelastic demand. In this market, the burden of a tax on rubber bads wi fall more heavily on buyer. Then graph two depicts a market for runner bands that has a very inelastic demand. In this market, the burden of a tax on rubber bads will fall more heavily on sellers.