Assuming the demand curve is more elastic (flatter) than the supply curve, which of the following is true?
A) The full tax is always passed on to the consumer no matter how flat (elastic) the demand curve is.
B) The full tax is always passed on to the seller no matter how flat (elastic) the demand curve is.
C) A smaller portion of sales tax is passed on to the consumer.
D) It does not make any difference how flat (elastic) the demand curve is; the tax is always split evenly between buyer and seller.

Question

Quizplus · Accepted Answer

When the demand curve is more elastic (flatter) than the supply curve, consumers are generally more sensitive to price changes than producers. This means that if a tax is imposed on the good, the sellers may not be able to pass on the full burden of the tax to the buyers, as the buyers may simply switch to substitutes or reduce their quantity demanded. Therefore, a smaller portion of the sales tax is likely to be passed on to the consumer, and the seller will bear a larger proportion of the tax burden.

Assuming the Demand Curve Is More Elastic (Flatter) Than the Supply