Suppose elasticity of demand is 0.2, elasticity of supply is 0.7, and a 10 percent excise tax is levied on producers. Which of the following changes will reduce the share of the tax paid by consumers?
A) Elasticity of supply falls to 0.3.
B) Elasticity of demand falls to 0.1.
C) The tax is increased to 20 percent.
D) Nothing will change the burden of the tax.

Question

Quizplus · Accepted Answer

If the elasticity of supply decreases, producers are less responsive to price changes, meaning they will bear more of the tax burden, reducing the share paid by consumers.

Suppose Elasticity of Demand Is 0