Answer to Question #286022 in Microeconomics for Dilisha verma

Question

If this market has very elastic supply and very inelastic demand how would the burden of a text on rubber bands be shared between consumer and produces use the tool of consumer surplus and producer surplus in your answer

Answer 1

If the market for rubber bands has a very elastic supply and a very inelastic demand, the supply and demand curves will be as follows.

In this case, the tax burden on the consumer is higher than the tax burden on producer.

Producer surplus decreases to the area of DC and P_S consumer surplus decreases to the area of AB P_B.

However, the decrease of consumer surplus is greater than the decrease of producer surplus, which implies that there will be a higher tax burden on the consumer than on the producer.