Suppose elasticity of demand is 1, elasticity of supply is 2, and a 5 percent excise tax is levied on consumers. Which of the following changes will reduce the burden of the tax on consumers?
A) Elasticity of demand falls to 0.
B) Elasticity of demand rises to 2.
C) Taxing authorities levy the tax on suppliers.
D) Nothing will change the burden of the tax.

Question

Quizplus · Accepted Answer

When the elasticity of demand increases, consumers become more responsive to price changes, meaning they can more easily reduce their quantity demanded when prices rise due to a tax. This shifts more of the tax burden onto suppliers.

Suppose Elasticity of Demand Is 1, Elasticity of Supply Is