Suppose that the federal government levies a 50 cent excise tax on gasoline and that the demand for gasoline is highly inelastic while the supply is highly elastic. Under these circumstances, the burden of the tax
A) will fall primarily on producers.
B) will fall primarily on consumers.
C) will be split equally between consumers and producers.
D) cannot be determined because the burden of a tax is not influenced by the elasticities of supply and demand.

Question

Quizplus · Accepted Answer

When demand is highly inelastic and supply is highly elastic, consumers bear most of the tax burden because they are less responsive to price changes.

Suppose That the Federal Government Levies a 50 Cent Excise