Use the following to answer question(s): Tax Incidence

-(Exhibit: Tax Incidence) All other things unchanged, when a good or service is characterized by a relatively elastic supply, as shown in Panel _______ , the greater share of the burden of an excise tax imposed on it (shown by the tax wedge in each panel) is borne by _______.

Question

Use the following to answer question(s): Tax Incidence
 
-(Exhibit: Tax Incidence) All other things unchanged, when a good or service is characterized by a relatively elastic supply, as shown in Panel _______ , the greater share of the burden of an excise tax imposed on it (shown by the tax wedge in each panel) is borne by _______.

Quizplus · Accepted Answer

When a good or service is characterized by a relatively elastic supply, the burden of an excise tax imposed on it falls primarily on the buyers. This is because when the supply is more elastic, the producers are able to shift a larger part of the tax burden to the buyers by increasing the price of the good or service. As a result, the quantity demanded falls, and the buyers end up paying a higher price for the same quantity of the good or service. Panel (a) shows a relatively elastic supply, and hence the burden falls primarily on the buyers.

Use the Following to Answer Question(s): Tax Incidence