When a tax is imposed on a good for which the supply is relatively elastic and the demand is relatively inelastic,
A)buyers of the good will incur most of the burden of the tax.
B)sellers of the good will incur most of the burden of the tax.
C)buyers and sellers will each incur 50 percent of the burden of the tax.
D)the equilibrium quantity will increase.

Question

When a tax is imposed on a good for which the supply is relatively elastic and the demand is relatively inelastic,
A)​buyers of the good will incur most of the burden of the tax.
B)​sellers of the good will incur most of the burden of the tax.
C)​buyers and sellers will each incur 50 percent of the burden of the tax.
D)​the equilibrium quantity will increase.

Quizplus · Accepted Answer

When the supply of a good is relatively elastic and the demand is relatively inelastic, the burden of the tax will fall more heavily on the buyers. This is because sellers will be able to pass on a higher percentage of the tax to the buyers, who are less able to find substitutes for the good and therefore must bear a greater share of the burden. As a result, the equilibrium price will increase by a smaller amount than in a case where the demand is more elastic, and the equilibrium quantity may decrease if the demand is sufficiently price-sensitive.

When a Tax Is Imposed on a Good for Which