Question

Assume the price elasticity of supply is the same between Good A and Good B and the demand for Good A is relatively elastic while the demand for Good B is relatively inelastic. If a $2.00 per unit tax is imposed on both markets,

Answer 1

In this scenario, assuming the price elasticity of supply is the same for Good A and Good B, the difference lies in the elasticity of demand. Good A has relatively elastic demand while Good B has relatively inelastic demand. If a $2.00 per unit tax is imposed on both markets, the tax burden will be predominantly borne by the buyers in the market for Good A and by the producers in the market for Good B.

Step-by-step explanation:

The question pertains to the subject of Economics. Specifically, it relates to the concepts of price elasticity of demand and supply and the impact of taxes on markets.

In this scenario, assuming the price elasticity of supply is the same for Good A and Good B, the difference lies in the elasticity of demand. Good A has relatively elastic demand while Good B has relatively inelastic demand.

If a $2.00 per unit tax is imposed on both markets, the tax burden will be predominantly borne by the buyers in the market for Good A and by the producers in the market for Good B. This is because when demand is more elastic than supply, buyers bear most of the tax burden, whereas when supply is more elastic than demand, producers bear most of the cost of the tax.