Suppose that the government imposes an excise tax on widgets.The portion of the tax borne by the buyer of widgets depends upon
A)elasticity of demand.
B)income of buyers.
C)size of the tax that is imposed.
D)cross elasticity of demand between widgets and floogles.

Question

Quizplus · Accepted Answer

The portion of the tax borne by the buyer of widgets depends upon the elasticity of demand. If the demand for widgets is elastic, then buyers will be more sensitive to price changes and will bear less of the tax burden as they may switch to substitute goods. On the other hand, if the demand for widgets is inelastic, then buyers will bear more of the tax burden as they have less ability to switch to alternative products.

Suppose That the Government Imposes an Excise Tax on Widgets