Consumers will bear a larger burden of an excise tax if
A)demand is relatively elastic and supply is relatively inelastic.
B)demand is relatively inelastic and supply is relatively elastic.
C)both demand and supply are relatively inelastic.
D)both demand and supply are relatively elastic.
E)the tax is collected by firms rather than remitted directly to the government by consumers.

Question

Quizplus · Accepted Answer

When demand is relatively inelastic and supply is relatively elastic, producers are able to pass on most of the tax burden to consumers because consumers do not have many alternatives to choose from. In other words, consumers are not very responsive to changes in price, while producers can easily adjust their supply in response to the tax. Therefore, the burden of the tax falls disproportionately on consumers.

Consumers Will Bear a Larger Burden of an Excise Tax