Producers will bear a larger burden of a sales tax if
A) demand is relatively elastic and supply is relatively inelastic.
B) demand is relatively inelastic and supply is relatively elastic.
C) both demand and supply are relatively elastic.
D) both demand and supply are relatively inelastic.
E) the tax is collected by firms rather than remitted directly to the government by consumers.

Question

Quizplus · Accepted Answer

When demand is relatively elastic and supply is relatively inelastic, producers cannot easily pass the tax onto consumers because consumers will reduce their quantity demanded significantly in response to price increases. Therefore, producers bear a larger burden of the tax.

Producers Will Bear a Larger Burden of a Sales Tax