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Question, Wish the answered in 5 sentences and not copy and paste one.   Suppose a liquor...

Question, Wish the answered in 5 sentences and not copy and paste one.  

Suppose a liquor store has to pay $1 of sales tax over a six-pack of Beer. If the main customers of the liquor store are perfect price elastic, who pay $1 of sales tax between the liquor store and the main customers? why? If the main customers of the liquor store are perfect price inelastic, who pay $1 of sales tax between the liquor store and the main customers? why?

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Answer #1

Burden of tax depends on the relative elasticities of demand and supply.

When customers have perfectly elastic demand, liquor store will pay the $1 tax because when customers have perfectly elastic demand, increase in price will reduce the quantity demanded by a large percentage. This makes the seller to bear the burden of tax completely.

When customers have perfectly inelastic demand, increase in price has no effect on quantity demanded. This allows the sells to pass on the burden of tax to customers. Thus customers pay the $1 tax when they have perfectly inelastic demand.

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