Figure 131

Regulatory Burden Allocation Under Elastic and Inelastic Demand

(a) Highly elastic product demand places the burden of regulation-induced cost increases on producers, who must cut production from Qj to Q2. (b) Low elasticity of product demand allows producers to raise prices from Pt to P2, and consumers bear the burden of regulation-induced cost increases.

Regulatory Burden Allocation Under Elastic and Inelastic Demand

(a) Highly elastic product demand places the burden of regulation-induced cost increases on producers, who must cut production from Qj to Q2. (b) Low elasticity of product demand allows producers to raise prices from Pt to P2, and consumers bear the burden of regulation-induced cost increases.

Quantity

Price and cost per unit ($) Demand

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