When a tax is imposed on a good for which the supply is relatively elastic and the demand is relatively inelastic,
A)buyers of the good will bear most of the burden of the tax.
B)sellers of the good will bear most of the burden of the tax.
C)the effective price paid by buyers of the good will decrease.
D)the size of the market for the good will expand.

Question

Quizplus · Accepted Answer

When supply is elastic and demand is inelastic, the producers can easily shift the burden of the tax onto the consumers by increasing the price of the good by a smaller percentage than the tax imposed. As demand is inelastic, consumers are still willing to buy the same quantity of the good even at a slightly higher price. Hence, the buyers of the good will bear most of the burden of the tax in this case.

When a Tax Is Imposed on a Good for Which