2.6 IMPORTANCE OF ELASTICITY

Question 1

what is incidence of tax

Answer 1

the amount of tax that is passed onto a consumer- is determined by the price elasticity

Question 2

importance of elasticity

Answer 2

• relationship between changes in price and total revenue
• importance in determining what to tax
• importance in analysing time lags in production
• influences the behaviour of a firm

Question 3

what happens if its a relatively inelastic good

Answer 3

the greater the amount of tax that will be passed onto the consumer

Question 4

what happens if its a relatively elastic good

Answer 4

the greater the amount of tax that will be passed onto the supplier