Figure 18-2

Figure 18-2 shows a demand curve and two sets of supply curves, one set more elastic than the other.
-Refer to Figure 18-2.If the government imposes an excise tax of $1.00 on every unit sold, the consumer's burden of the tax
A)is greater under the more elastic supply curve S₀.
B)is greater under the less elastic supply curve S₀.
C)is greater under the less elastic supply curve S₁.
D)is the same under either supply curve because there is a single demand curve that captures buyers' market behavior.

Question

Figure 18-2
  
Figure 18-2 shows a demand curve and two sets of supply curves, one set more elastic than the other.
-Refer to Figure 18-2.If the government imposes an excise tax of $1.00 on every unit sold, the consumer's burden of the tax
A)is greater under the more elastic supply curve S₀. 
B)is greater under the less elastic supply curve S₀. 
C)is greater under the less elastic supply curve S₁. 
D)is the same under either supply curve because there is a single demand curve that captures buyers' market behavior.

Quizplus · Accepted Answer

When the supply is more elastic, the quantity demanded changes more for a given change in price. Therefore, after the tax, the price paid by consumers will be closer to the original price and suppliers will bear a greater share of the burden of the tax. On the other hand, when the supply is less elastic, the quantity demanded changes less for a given change in price. Therefore, after the tax, the price paid by consumers will be higher and consumers will bear a greater share of the burden of the tax.

Figure 18-2 Figure 18-2 Shows a Demand Curve and Two Sets of Curve