When a tax is imposed on a good for which demand is elastic and supply is elastic,
A)sellers effectively pay the majority of the tax.
B)buyers effectively pay the majority of the tax.
C)the tax burden is equally divided between buyers and sellers.
D)None of the above is correct; further information would be required to determine how the burden of the tax is distributed between buyers and sellers.

Question

Quizplus · Accepted Answer

In order to determine how the burden of the tax is distributed between buyers and sellers, we would need to know the specific amounts of the tax and the equilibrium price and quantity before and after the tax. However, if demand and supply are both elastic, it is likely that both buyers and sellers will bear some portion of the tax burden. The incidence of the tax (i.e. who ultimately pays it) depends on the relative elasticities of demand and supply.

When a Tax Is Imposed on a Good for Which