When the elasticity of demand for a product is smaller than the elasticity of supply,sellers pay the majority of the tax on the product.

Question

Quizplus · Accepted Answer

When the elasticity of demand is smaller than the elasticity of supply, buyers pay the majority of the tax on the product. This is because when the price of a product increases due to a tax, the quantity demanded decreases by a relatively small amount while the quantity supplied increases by a relatively large amount. As a result, buyers will be willing to pay more for the same quantity, while sellers will only receive a marginally higher price. Therefore, the burden of the tax falls more heavily on buyers than on sellers.

When the Elasticity of Demand for a Product Is Smaller