Figure 6-17

-Refer to Figure 6-17. If the government places a $2 tax in the market, the buyer bears $2 of the tax burden.

Question

Figure 6-17
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-Refer to Figure 6-17. If the government places a $2 tax in the market, the buyer bears $2 of the tax burden.

Quizplus · Accepted Answer

The tax burden between buyers and sellers depends on the elasticities of supply and demand, not just the amount of the tax. The division of the tax burden is determined by who is more sensitive to price changes: if demand is more inelastic than supply, buyers will bear a larger share of the tax burden, and vice versa.

Figure 6-17 ​

Figure 6-17