Economics?????

Starbucksgirl: Economics?????
Describe how the following events will affect the incidence of taxation – that is after the event, will the tax fall more heavily on the consumer or the producer in comparison the before the event? Use the concept of elasticity to explain your answer.

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 CA market to markets in neighboring states likt NV.
c) sales of electricity to CA residents are taxed. Regulations are introduced that make it much easier for California utility companies to divert supplies of electricity from the CA market to markets in neighboring states like NV.

HELP
I cannot tell if they were elastic or inelastic to begin with and what is actually happening

Answers and Views:

Answer by basudebsenseknomix
a) Residential electricity demand is inelastic or has low elasticity because in moderday life residents cannot live without electricity and cannot replace electricity consumption by consumption of lanterns or candles to light homes and firewood to warm homes etc. Residential electricity consumption is more an absolute necessity in homes. Electricity generation is linked to loads and hence regulation making it difficult to divert electricity to neighbouring state to avoid tax makes electricity supply also inelastic in Califonia. So with the tax on electricity consumption by residents, both the producers and consumers will have to share the burden.
b) the position remains the same as in a) above with the major difference that electricity supply to CA residents now become more elastic as it can be easily diverted to other neighbouriing states where the sales relalization to the electricity producers may be higher because of zero tax. In this CA residential electricity consumers will have share a greater burden of the tax than the incidence of the tax burden on them under case a).