Question

Among the tax proposals regularly considered by Congress is an additional tax on distilled liquors. The tax would not apply to beer. The price elasticity of supply of liquor is 3.5​, and the price elasticity of demand is −0.4. The​ cross-elasticity of demand for beer with respect to the price of liquor is 0.1. If the new tax is​ imposed, who will bear the greater burden long —liquor suppliers or liquor​ consumers?

Answer 1

Liquor consumers

Step-by-step explanation:

Price elasticity measures the degree of responsiveness of quantity demanded to changes in price. Demand is elastic if a small change in price has a great effect on quantity demanded. The coefficient of elasticity is usually greater than 1.

Demand is inelastic if changes in price has little or no impact on the quantity demanded. Coefficient of elasticity is usually less than 1.

The elasticity of demand for liquor is -0.4 while the elasticity of supply for liquor is 3.5. Therefore the demand for liquor is inelastic while the supply of liquor is elastic.

If taxes are imposed on consumers, the quantity demanded wouldn't change or change a little.

If taxes are imposed on suppliers, the quantity supplied would fall more.

Therefore , the burden of tax can be passed on more to consumers.

I hope my answer helps you.