When a tax is imposed on the producers of a product, if the demand curve is relatively inelastic, the burden borne by consumers increases.

Question

Quizplus · Accepted Answer

When the demand for a product is relatively inelastic, consumers are less responsive to price changes. This means that when a tax is imposed on the producers of the product, they are less likely to bear the burden of the tax and instead pass it on to consumers in the form of higher prices. Therefore, if the demand curve is relatively inelastic, consumers will bear a greater portion of the tax burden. When the demand for a product is relatively inelastic, consumers are not very responsive to changes in price. Thus, when a tax is imposed on the producers, they may pass on the burden of the tax to the consumers by increasing the price of the product. Since the demand is inelastic, consumers will continue to buy the product even at the higher price, resulting in an increase in the burden borne by consumers.

When a Tax Is Imposed on the Producers of a Product