The elasticity of demand for a good is 1 and the elasticity of supply is 0.8.Thus,imposing a tax on the good ________ the price kept by sellers and ________ the price paid by buyers.
A) raises; raises
B) raises; lowers
C) lowers; raises
D) lowers; lowers
E) does not change; raises

Question

Quizplus · Accepted Answer

When a tax is imposed, the price paid by buyers increases and the price received by sellers decreases. Since demand is unit elastic (elasticity = 1) and supply is inelastic (elasticity = 0.8), the burden of the tax falls more on sellers, lowering the price they keep.

The Elasticity of Demand for a Good Is 1 and the Elasticity