a What is meant by the incidence of a tax How is the inciden

(a) What is meant by the incidence of a tax? How is the incidence of a related to the elasticities of supply and demand? (b) What are the welfare effects (who gains, who loses, and the dead weight loss) of a price ceiling. Explain (c) Will a price ceiling always increase consumer surplus? Explain

Solution

a. Incidence of tax refers to share of amount of tax burden between supplier and consumer. Lesser the elasticity or inelastic more would be tax amount shared
b. It leads to shortages as more quantity would be demanded. Consumer gains and producer loses because of deadweight loss
c. If the price ceiling is above the equilibrium price then the consumer surplus will not be affective. Hence it is effective only when the price ceiling is lesser than equilibrium price.