If the elasticity of demand is much greater than the elasticity of supply,an excise tax levied on the suppliers will
A)cause the suppliers to incur a greater burden of the tax than demanders
B)cause the demanders to incur a greater burden of the tax than suppliers
C)the burden of the tax will be shared equally between the suppliers and the demanders
D)cause the entire burden of the tax to rest on the demanders
E)Without more information as to the amount of the excise tax,who will incur a greater burden will be unclear

Question

Quizplus · Accepted Answer

If the elasticity of demand is much greater than the elasticity of supply, then the consumers are more sensitive to changes in price than the producers. As a result, when an excise tax is levied on the suppliers, they will pass on part of the burden of the tax to the consumers in the form of higher prices. However, since the demand is highly elastic, the consumers will reduce their quantity demanded significantly, which means that the suppliers will have to bear a greater burden of the tax than the consumers. Therefore, choice A is the best answer.

If the Elasticity of Demand Is Much Greater Than the Elasticity