If the demand curve is downward-sloping, and supply is relatively elastic, then the burden of a tax is:
A)borne mostly by consumers.
B)borne mostly by producers.
C)shared by consumers and producers, with the burden falling mainly on consumers.
D)shared by consumers and producers, with the burden falling mainly on producers.

Question

Quizplus · Accepted Answer

When the demand curve is downward sloping and supply is relatively elastic, it means that consumers are more responsive to changes in price than producers. Therefore, if a tax is imposed, producers will try to pass on the burden of the tax to consumers in the form of higher prices. However, since consumers are sensitive to price changes, they will reduce their quantity demanded, which will lead to a bigger decrease in the quantity sold than the increase in price. As a result, the burden of the tax falls mainly on consumers.

If the Demand Curve Is Downward-Sloping, and Supply Is Relatively