In which situation would consumers bear the highest incidence of a tax?
A) inelastic demand with elastic supply
B) inelastic demand with inelastic supply
C) elastic demand with inelastic supply
D) elastic demand with elastic supply

Question

Quizplus · Accepted Answer

When demand is inelastic and supply is elastic, consumers are less sensitive to price changes and will continue to purchase the product despite the tax, leading to a higher incidence of the tax on consumers. Suppliers, on the other hand, can more easily adjust their quantity supplied due to the elasticity of supply, shifting the tax burden to consumers.

In Which Situation Would Consumers Bear the Highest Incidence of a Tax