If demand is relatively inelastic and supply relatively elastic, the incidence of an excise tax
A) falls primarily on consumers.
B) falls primarily on producers.
C) is shared evenly by consumers and producers.
D) falls entirely on consumers.

Question

Quizplus · Accepted Answer

When demand is relatively inelastic and supply is relatively elastic, consumers are less responsive to price changes while producers can more easily adjust their quantity supplied. Therefore, the burden of an excise tax falls primarily on consumers because they are less likely to reduce their quantity demanded in response to the tax-induced price increase.

If Demand Is Relatively Inelastic and Supply Relatively Elastic, the Incidence