If elasticity of demand is 0.6, elasticity of supply is 0.6, and a 20% excise tax is levied on the good:a. The fraction of the tax borne by consumers will be 0.5. b. The fraction of the tax borne by suppliers will be 0.6 c. The fraction of the tax borne by consumers will be 0.6. d. The fraction of the tax borne by suppliers will be 0.3.

The correct option a. The fraction of the tax borne by consumers will be 0.5.

Explanation:

The tax burden is determined by the supply and demand price elasticity. Consumers bear the burden of the tax more than the suppliers when supply is more elastic than demand. When demand is more elastic than supply, the tax burden falls more on suppliers than consumers. When demand elasticity and supply elasticity are identical, the tax burden is shared equally by consumers and suppliers.

From the question, we have:

Elasticity of demand = Elasticity of supply = 0.6

Since demand elasticity and supply elasticity are identical, the burden of 20% excise tax is shared equally by consumers and suppliers. That 50% by 50%, or 0.5 by 0.5.

Therefore, the correct option a. The fraction of the tax borne by consumers will be 0.5.

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