Question

3. consider the market for rubber bands. a. if this market has very elastic supply and very inelastic demand, how would the burden of a tax on rubber bands be shared between consumers and producers? use the tools of consumer surplus and producer surplus in your answer. b. if this market has very inelastic supply and very elastic demand, how would the burden of a tax on rubber bands be shared between consumers and producers? contrast your answer with your answer to part (a)

Answer 1

Since demand is indeed very inelastic and supply is very elastic, consumers will bear the largest portion of the cost of a rubber band tax.

A market supply curve is created by adding the supply curves of various enterprises. The requirement for complete competition in the market is a key principle for understanding the business supply curves. This indicates that there are many participants (companies who make the very same product) on the market and that there isn't a totally dominant company with the power to control prices. The link between supply and demand is essential because it enables to establish the costs and accessibility of the majority of goods and services in a given market. The interplay between supply and demand ultimately balances out in accordance with the tenets of a market economy.

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