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 the demand for liquor is elastic and the supply of liquor is inelastic, when the government increases liquor tax, _____.
A)most of the tax will be paid by the consumer
B)most of the tax will be paid by the producer
C)all of the tax will be paid by the consumer
D)all of the tax will be paid by the producer
E)the tax will be paid by the retailer

Question

Quizplus · Accepted Answer

When demand is elastic and supply is inelastic, producers bear most of the tax burden because consumers are more sensitive to price changes and can reduce their quantity demanded significantly.

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