Tax incidence depends on the elasticities of supply and demand. If demand is more elastic than supply, then consumers will bear less of the burden of the tax. If supply is more elastic than demand, then producers will bear less of the burden of the tax. The distribution of the burden depends on the relative elasticities of supply and demand.

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Tax Incidence

Question 167

Multiple Choice

Tax incidence

A) depends on the legislated burden.
B) is entirely random.
C) depends on the elasticities of supply and demand.
D) falls entirely on buyers or entirely on sellers.

Correct Answer: