If the elasticity of demand is 2 in absolute value, and the elasticity of supply is 1 in absolute value, how much of a tax burden will the buyer bear relative to the seller?
A) The buyer will bear more of the tax burden than will the seller.
B) The seller will bear more of the tax burden than will the buyer.
C) The buyer and seller will share the tax burden equally.
D) The buyer will not bear none of the tax burden since demand curve is twice as elastic as supply.

Question

Quizplus · Accepted Answer

The tax burden is shared based on the relative elasticities of demand and supply. Since the demand is more elastic (2) than the supply (1), the seller will bear more of the tax burden.

If the Elasticity of Demand Is 2 in Absolute Value