Question

Green et al.​ (2005) estimate that the demand elasticity is minus0.47 and the​ long-run supply elasticity is 12.0 for almonds. The corresponding elasticities are minus0.68 and 0.73 for cotton and minus0.26 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 nothing percent. ​(Enter numeric responses using real numbers rounded to one decimal​ place.)

Answer 1

The tax incidence on consumers for a specific commodity depends on the elasticity of demand and supply; for almonds with inelastic demand and elastic supply, consumers would bear 3.8% of the tax burden.

Step-by-step explanation:

When analyzing the tax incidence of a specific commodity, such as almonds, cotton, or processing tomatoes, we must consider the elasticity of demand and supply. The demand elasticity for almonds is -0.47, indicating that demand is relatively inelastic, while the supply elasticity is 12.0, which is highly elastic. According to Elasticity and Tax Incidence, the burden of a tax falls more heavily on the side of the market that is less elastic. In the case of almonds, the consumers would bear a smaller portion of the tax burden due to the relatively more elastic supply.

To calculate the specific incidence on consumers, we use the formula: Percentage of tax borne by consumers =
Demand Elasticity / (Demand Elasticity + Supply Elasticity), wherein the elasticities are taken as absolute values. Thus, for almonds, it would be 0.47 / (0.47 + 12) = 0.47 / 12.47 = 0.0377, or 3.8% (rounded to one decimal place) of the tax incidence would fall on consumers.

Answer 2

The numeric response for the question using real numbers rounded to one decimal​ place is given as below.

Step-by-step explanation:

Tax incidence for almonds is (12 / (12 + 0.47)) = 0.96

for cotton (0.73 / (0.73 + 0.68)) = 0.52 and

for processing tomatoes is (0.64 / (0.64 + 0.26)) = 0.71