Given an upward-sloping supply curve, the more inelastic the demand, the greater the fraction of the burden of taxation borne by the consumer.

Question

Quizplus · Accepted Answer

When demand is inelastic, consumers are less responsive to changes in price, so the burden of the tax will fall primarily on them. If demand is elastic, consumers will be more likely to adjust their behavior in response to price changes, so producers will bear a greater share of the tax burden.

Given an Upward-Sloping Supply Curve, the More Inelastic the Demand