Assume that coal demand is elastic, while coal supply is highly inelastic. If a tax of...
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Assume that coal demand is elastic, while coal supply is highly inelastic. If a tax of $5.00 per short ton is placed on coal buyers, we would expect that the burden of the tax would fall on
Buyers and sellers equally.
Buyers more than sellers
Sellers more than buyers
Not enough information to answer the question.
Homework Answers
Ans) When government imposes tax, it does not really matter upon whom the tax is imposed, burden of tax is shared by both buyers and sellers. Now who will bear greater burden of tax depends upon the elasticity of demand and supply. Accordingly, less elastic side of the market bears greater burden of tax.
In the question it is given that demand is elastic while supply is less elastic (or more inelastic). Therefore, sellers will bear greater burden of tax.
Option c (sellers more than buyers)
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