If a tax is imposed on a good where both supply and demand are somewhat elastic,...
If a tax is imposed on a good where both supply and demand are somewhat elastic, but demand is more elastic than supply, the burden of the tax will be borne
a. by producers alone.
b. by consumers and producers equally.
c. by consumers alone.
d. mostly by producers but partially by consumers.
e. mostly by consumers but partially by producers.
Homework Answers
- The elasticity of demand and supply means little change in price can cause a high change in the quantity demanded and quantity supplied respectively.
- But in the question, it is given that the demand is more elastic than the supply which means consumers are more price sensitive.
- if the price of the good slightly increases then quantity demand will be decreased drastically because of less demand by the consumers.
- Suppliers are less Elastic due to tax burden which means the producer has not very much effect of this price change in production.
- So the answer will be the burden of the tax will be mostly on the consumers fastly by the producers
- The answer is option E.
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