While recognising the need to encourage student enquiry, independent
learning and intellectual stimulation, it just occurs to me that this issue
is a wonderful example of the reasons for the very sad decline in Economics
and its replacement by what is perceived to be the more relevant subject of
business studies.
-----Original Message-----
From: Dave Sowden [SMTP:[log in to unmask]]
Sent: 11 May 2003 10:30
To: [log in to unmask]
Subject: Re: Price Elasiticity of supply
I followed the link Duncan provided and discovered this on page 18
"- the more inelastic is supply - the greater the burden to buyers."
Now I confess I did not follow John's original posting too closely but I
have always understood that defining tax incidence as Change in
Price/Change
in Tax, allows us to deduce that
Tax Incidence = Elasticity of Supply/Elasticity of Supply + Elasticity of
Demand
Thus as Elasticity of Demand increases, the burden of taxation on the
consumer decreases. On the other hand as the Elasticity of Supply
increases
and ultimately approaches infinity, Elasticity of Demand becomes very small
in comparison, and the consumer has to bear the entire burden of taxation.
In other words, cet par, the more elastic supply is, the greater the burden
on consumers.
Dave Sowden
Raffles Junior College
Singapore
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