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Supply Elasticity is 0.8 and demand elasticity is -1.4 for a particular commodity sold in a marke...

Supply Elasticity is 0.8 and demand elasticity is -1.4 for a particular commodity sold in a market. If the government had imposed a unit tax of Rs 5.00, what would be the unit tax borne by the producer? Please explain the answer ( including diagrams)

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Answer #1

We know tax burden on buyer/ Seller=Es/Ed

consumer burden/producer burden=0.8/1.4=0.571428

Thus consumer burden=0.5714 producer burden

we also know consumer +Producer burden=5

Thus 1.5714 Producer burden=5

producer burden=5/1.5714=3.1818

and consumer burden=1.81817

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