Consider two increasing-cost competitive industries (A and B)having identical supply curves.However,the demand curve faced by industry A is more inelastic than the demand curve of industry B.Which of the following is true if a per-unit excise tax is levied on the output of both the industries?
A)The consumers of industry A's product will bear a greater burden of the tax than the producers.
B)The consumers of industry A's product will bear a smaller burden of the tax than the producers.
C)The consumers of industry B's product will bear a larger burden of the tax than the consumers of industry A.
D)The consumers of industry B's product will bear the entire burden of the tax imposed on that product.

Question

Quizplus · Accepted Answer

When demand is more inelastic, consumers are less responsive to price changes, so they bear a greater burden of the tax. Since industry A has a more inelastic demand curve, its consumers will bear a greater burden of the tax compared to the producers.

Consider Two Increasing-Cost Competitive Industries (A and B)having Identical Supply