Describe how the following events will affect the incidence of
taxation—that is, after the event, will the tax fall more heavily
on consumers or producers in comparison to before the event?
Use the concept of elasticity to explain your answer.
a. Sales of gasoline are taxed. Ethanol, a substitute for gasoline, becomes widely available.
b. Sales of electricity to California residents are taxed.
Regulations are introduced that make it much more difficult for California utility companies to divert supplies of
electricity from the California market to markets in neighboring states like Nevada.
c. Sales of electricity to California residents are taxed.
Regulations are introduced that make it much easier for
California utility companies to divert supplies of electricity
from the California market to markets in neighboring
states like Nevada.
d. The sale of municipally provided water is taxed. Legislation
is introduced that forbids the use of private sources of
water such as wells and the diversion of rivers.