E. It is claimed that the incidence of taxation on producers and consumers is ultimately determined by the elasticities of supply and demand or how responsive the quantity supplied or demanded is to price changes.
I. In a market there occurs a 5% change in the prices of fuel and in response there occurs 2% decline in the sales for fuel. How would you do you expect the tax incidence to be on the sellers and buyers of fuel in this market?
[4 Marks]
In another market there occurs a 5% change in the prices of fuel and in response there occurs 10% decline in the sales for fuel. How would you
Page 5 of 7
expect the tax incidence to be on the sellers and buyers of fuel in this
market?
[4 Marks]
[TOTAL: 25 MARKS]
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