The buyer pays most of a tax if demand is relatively inelastic because
A)the buyer cannot easily substitute to other markets.
B)the buyer can easily substitute to other markets.
C)the government forces the seller to bear the burden of the tax.
D)there is a black market for this good.
E)the seller cannot easily substitute to other goods.

Question

Quizplus · Accepted Answer

When demand is relatively inelastic, it means that buyers are not very responsive to changes in price. Therefore, if a tax is added to the price of the good, the buyer will end up paying most of the tax because they cannot easily substitute to other markets. In contrast, if the demand were elastic, then buyers would be more sensitive to changes in price and would be able to easily switch to other alternatives, making it difficult for the seller to pass on the full burden of the tax.

The Buyer Pays Most of a Tax If Demand Is