Scenario 5.1
The demand for noodles is given by the following equation: Q = 20 - 4P + 0.2I - 2P x . Assume that P = $8, I = 200, and P x = $10.
-If demand is relatively elastic and supply is relatively inelastic, then the incidence of a tax will fall mainly on consumers.

Question

Quizplus · Accepted Answer

When demand is relatively elastic and supply is relatively inelastic, the incidence of a tax falls mainly on producers, not consumers, because producers are less able to pass the tax onto consumers through higher prices due to the elastic nature of demand.

Scenario 5.1 The Demand for Noodles Is Given by the Following Equation