Suppose that there is a tax of $5 per unit, and the demand curve is more elastic than the supply curve. Which of the following statements could be TRUE?
A) Buyers pay $3 of the tax.
B) Buyers pay $1 of the tax.
C) Sellers pay $1 of the tax.
D) Sellers pay all of the tax.

Question

Quizplus · Accepted Answer

When the demand curve is more elastic than the supply curve, buyers are more sensitive to price changes, so they will bear a smaller portion of the tax burden. Thus, buyers paying $1 of the tax is plausible.

Suppose That There Is a Tax of $5 Per Unit