Explain the relationship between the incidence of a tax and elasticity
What will be an ideal response?
It does not matter whether a tax is imposed on the buyers or the sellers. Once the tax is imposed in the market, the buyers and the sellers generally will both pay a share of the tax because the buyers will pay a higher price and the sellers will receive a lower price. The incidence of the tax between the buyers and the sellers depends in the elasticities of demand and supply. Because elasticity is a measure of sensitivity to a change in price, the side of the market--buyers or suppliers--that is less sensitive to price changes will end up paying a larger proportion of the tax.
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Robert must always have cream in his coffee. For Robert, the cross price elasticity of demand for coffee and cream is
A) equal to 0. B) negative. C) positive. D) impossible to determine without more information.
Bilateral monopoly exists when
A) there is either a monopoly or a monopsony in the market. B) there are two competing labor unions in a labor market. C) there is a monopoly and a monopsony in a market. D) a firm is both a monopolist in its output market and a monopsonist in the input market.