Suppose That the Demand for Apples Is Perfectly Elastic and the Government

question 42

Essay

Suppose that the demand for apples is perfectly elastic and the government levies a tax on apple producers.Assume that the supply of apples is neither perfectly elastic nor perfectly inelastic.
(a)How will the price paid by consumers change? Is this change bigger or smaller than the price change that would result if the demand for apples were not perfectly elastic?
(b)How will the quantity of apples consumed change because of the tax? Is this change in quantity larger or smaller than the change that would result if the demand for apples were not perfectly elastic?
(c)Explain the significance of your answers in both part (a)and part (b)in terms of how the tax affects the welfare of consumers in the apple market.

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Definitions:

Income

Regular revenue generated through employment or by making investments.

Goods and Services

Refers to the physical products and intangible benefits that fulfill the needs or wants of consumers.

Surplus

The condition when supply exceeds demand, leading to excess goods or services being available.

White Water Rafting

A recreational outdoor activity which uses an inflatable raft to navigate a river or other body of water with varying degrees of rough water.