Question

Green et al. (2005) estimate that the demand elasticity is -0.47 and the long-run supply elasticity is 12.0 for almonds. The corresponding elasticities are -0.68 and 0.73 for cotton and -0.26 and 0.64 for processing tomatoes. If the government were to apply a specific tax to each of these commodities, what incidence would fall on consumers? The incidence of a specific almond tax that would fall on consumers is

Answer 1

Consumers bear most of the tax burden for a specific tax on almonds.

Step-by-step explanation:

The incidence of a specific tax on almonds that would fall on consumers can be determined by examining the elasticity of demand and supply. When demand is more elastic than supply, consumers bear most of the tax burden. In this case, the demand elasticity for almonds is -0.47, while the long-run supply elasticity is 12.0.

Since the demand elasticity is greater than the supply elasticity, the tax burden would fall mainly on consumers. This means that consumers would experience a greater increase in price compared to producers as a result of the tax.