The demand curve for good X is generally highly inelastic at and around the current price. If we assume that the supply curve is neither perfectly elastic nor perfectly inelastic, then who will pay the greater share of a tax placed on the production of good X?
A)The buyers will pay the greater share.
B)The sellers will pay the greater share.
C)The buyers and the sellers will pay equal shares.
D)There is not enough information to answer the question.

Question

Quizplus · Accepted Answer

When the demand for a good is highly inelastic, consumers are less sensitive to price changes. Therefore, if a tax is placed on the production of such a good, the buyers will tend to absorb a greater share of the tax because they are less likely to reduce their quantity demanded in response to the price increase caused by the tax.

The Demand Curve for Good X Is Generally Highly Inelastic