If elasticity of demand is 0.7, elasticity of supply is 0.7, and a 5 percent excise tax is levied on the good:
A) consumers pay 5 percent of the tax.
B) sellers pay 5 percent of the tax.
C) consumers pay 50 percent of the tax.
D) sellers pay 100 percent of the tax.

Question

Quizplus · Accepted Answer

When the elasticity of demand and supply are equal, the tax burden is shared equally between consumers and sellers. Since both elasticities are 0.7, consumers pay 50 percent of the tax.

If Elasticity of Demand Is 0