Who will bear the burden of a $0.50 tax placed on soda suppliers (consumer or seller)in a soda market where Qd = 225-10P and Qs = 50 + 15P?

Question

Quizplus · Accepted Answer

The burden of a tax on a good depends on the elasticity of demand and supply. The more inelastic side will bear a larger portion of the tax. In this case, the demand equation Qd = 225 - 10P is less elastic than the supply equation Qs = 50 + 15P because the coefficient on P (which indicates responsiveness to price changes) is smaller in absolute value for demand than for supply. This means consumers (demand side) are less responsive to price changes than sellers (supply side), and thus will bear a larger portion of the tax. Without calculating the exact split, the principle suggests consumers will bear more of the burden, making option A the most plausible choice given the options provided.

Who Will Bear the Burden of a $0