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microeconomics

 
 
majedny
 
Reply Sun 18 Mar, 2018 12:45 pm
Students are required to add the content to the following paragraph on the application of elasticity of demand.
If a seller knows the price elasticity of demand of his product it helps him in deciding if he can raise its unit price to make up for the newly introduced 10% commodity tax. Depending upon the elasticity there are three possibilities; one, he can pass the entire tax burden on to the consumers, two, he can pass the burden only partially, and three, he cannot pass the burden at all and will have to bear it by reducing the profit margin.

I didn't get this question. any help understanding
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izzythepush
 
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Reply Mon 19 Mar, 2018 01:05 pm
@majedny,
The elasticity is the rate at which demand is affected by changing cost. If the price rise does not affect demand he'll want to pass it on to the customer.

You can work the rest out yourself.
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