When a tax is placed on the buyers of lemonade,

Question

Quizplus · Accepted Answer

When the tax is placed on the buyers of lemonade, the burden of the tax will be shared by the buyers and sellers, but the division of the burden is not always equal. The incidence of the tax would depend on the elasticity of demand and supply. If the demand for lemonade is elastic, the buyers would bear a larger burden of the tax than the sellers. If the supply of lemonade is elastic, the sellers would bear a larger burden of the tax than the buyers. Therefore, the division of the burden of the tax would depend on the relative price elasticities of demand and supply.

When a Tax Is Placed on the Buyers of Lemonade