If elasticity of demand is 0.2, elasticity of supply is 0.5, and a 10 percent excise tax is levied on the good:
A) the tax burden on suppliers will be greater.
B) the tax burden on consumers will be greater.
C) the tax burden will be the same for both.
D) one cannot say who will bear the greater burden without knowing the tax.

Question

Quizplus · Accepted Answer

The tax burden falls more on the side of the market that is less elastic. Since the elasticity of demand (0.2) is less than the elasticity of supply (0.5), consumers will bear a greater burden of the tax.

If Elasticity of Demand Is 0