Consider the market for gasoline, a good with a relatively low elasticity of demand. Who will bear the majority of a tax imposed on gasoline?
A) It depends on the tax rate at the time the gasoline is sold.
B) Sellers will bear the majority of the tax, as long as supply is more elastic than demand.
C) Buyers will bear the majority of the tax, as long as demand is less elastic than supply.
D) No one will bear the majority of the tax; the tax burden will be borne equally by both buyers and sellers

Question

Quizplus · Accepted Answer

Since gasoline has a relatively low elasticity of demand, buyers will bear the majority of the tax if demand is less elastic than supply. This is because consumers will continue to purchase gasoline at a relatively high price even with the tax, as they have few substitutes and cannot significantly reduce their consumption. Producers, on the other hand, can pass the tax burden onto consumers by increasing prices slightly, but are more likely to absorb some of the costs themselves in order to remain competitive. Therefore, buyers of gasoline will bear the majority of the tax burden.

Consider the Market for Gasoline, a Good with a Relatively