Effect of Elasticity
Depending on the price elasticities of demand and supply, who bears more of the tax or who receives more of the subsidy may differ. Where the supply curve is more inelastic than the demand curve, producers bear more of the tax and receive more of the subsidy than consumers as the difference between the price producers receive and the initial market price is greater than the difference borne by consumers. Where the demand curve is more inelastic than the supply curve, the consumers bear more of the tax and receive more of the subsidy as the difference between the price consumers pay and the initial market price is greater than the difference borne by producers.
Read more about this topic: Effect Of Taxes And Subsidies On Price
Famous quotes containing the words effect of, effect and/or elasticity:
“The effect of studying masterpieces is to make me admire and do otherwise.”
—Gerard Manley Hopkins (18441889)
“Where there is not discernment, the behavior even of the purest soul may in effect amount to coarseness.”
—Henry David Thoreau (18171862)
“One of the reforms to be carried out during the incoming administration is a change in our monetary and banking laws, so as to secure greater elasticity in the forms of currency available for trade and to prevent the limitations of law from operating to increase the embarrassment of a financial panic.”
—William Howard Taft (18571930)