Buyers bear a smaller incidence of the tax when:

Question

Quizplus · Accepted Answer

When demand is more elastic than supply, a greater burden of the tax falls on the producer. This is because if the producer raises the price by the full amount of the tax, consumers will reduce their demand significantly, which will result in a substantial decrease in the producer's revenue. In this case, the producer may decide to absorb some of the tax themselves by reducing their profit margin, rather than passing on the full amount to consumers. As a result, buyers bear a smaller incidence of the tax.

Buyers Bear a Smaller Incidence of the Tax When