How is tax burden related to the elasticity of the market
A)A tax burden falls most heavily on the side of the market that is elastic.
B)A tax burden falls most heavily on the side of the market that is inelastic.
C)A tax burden falls most heavily on the side of the market that is closer to unit elastic.
D)A tax burden is not influenced by the relative elasticities of supply and demand.

Question

Quizplus · Accepted Answer

Tax burden falls most heavily on the side of the market that is inelastic because inelastic demand or supply means that there are no close substitutes in the market or no efficient way to adjust production or consumption in response to the tax. As a result, consumers or producers are willing to bear most of the tax burden, leading to a smaller reduction in quantity demanded or supplied and a higher increase in price. In contrast, when the market is elastic, consumers or producers have more flexibility to shift their behavior and avoid the tax, causing a larger reduction in quantity and a lower increase in price.

How Is Tax Burden Related to the Elasticity of the Market