If demand is elastic, the tax incidence falls more heavily on the _____, and deadweight loss is relatively _____.
A) buyer; large
B) buyer; small
C) seller; large
D) seller; small

Question

Quizplus · Accepted Answer

When demand is elastic, consumers are more sensitive to price changes and can more easily stop buying the product or switch to substitutes if the price rises due to a tax. Therefore, sellers bear more of the tax burden, and because elastic demand leads to larger changes in quantity bought and sold, the deadweight loss is relatively large.

If Demand Is Elastic, the Tax Incidence Falls More Heavily