If the demand for a good is very price elastic, the imposition of a tax on that good
A) places the largest portion of the burden on the sellers of that product
B) places the burden of the tax equally on buyers and sellers
C) places the largest portion of the tax on consumers
D) will make demand more elastic than it was before the tax
E) will make demand more inelastic than it was before the tax

Question

Quizplus · Accepted Answer

When demand is very price elastic, consumers are highly responsive to price changes, so they will reduce their quantity demanded significantly if the price rises. Therefore, sellers bear most of the tax burden because they cannot pass much of the tax onto consumers without losing sales.

If the Demand for a Good Is Very Price Elastic