The more inelastic the demand for a product, the more the actual burden of a tax on the product will:
A) fall on sellers.
B) fall on buyers.
C) fall equally on both buyers and sellers.
D) create a larger deadweight loss (or excess burden).

Question

Quizplus · Accepted Answer

When the demand for a product is inelastic, it means that buyers are less sensitive to changes in the price of the product. Therefore, if a tax is imposed on the product, the buyers will continue to buy the same amount of the product, regardless of the increased price. This means that the burden of the tax will fall on the buyers, as they are the ones who will ultimately pay the higher price. On the other hand, if the demand for the product is elastic, the buyers are more sensitive to changes in price, and a tax may result in a decrease in demand, putting the burden more on sellers.

The More Inelastic the Demand for a Product, the More