Let the price elasticity of supply for a good be 2.0, and the absolute value of the price elasticity of demand be 1.5. Which of the following is TRUE in this case?
A) Producers carry the majority of the tax burden.
B) Consumers carry the majority of the tax burden.
C) Producers and consumers carry an equal amount of the tax burden.
D) Consumers carry the entire tax burden.

Question

Quizplus · Accepted Answer

The absolute value of the price elasticity of demand is greater than the price elasticity of supply, which means demand is more sensitive to changes in price than supply. Therefore, consumers would bear the majority of the tax burden, as they would be more likely to change their behavior (e.g. buy less of the good) in response to the tax.

Let the Price Elasticity of Supply for a Good Be