When a good is taxed, the tax burden
A)falls disproportionately on the side of the market that is more elastic.
B)falls disproportionately on the side of the market that is more inelastic.
C)falls disproportionately on the side of the market that is closer to unit elastic.
D)is not impacted by the relative elasticities of supply and demand.

Question

When a good is taxed, the tax burden
A)​falls disproportionately on the side of the market that is more elastic.
B)​falls disproportionately on the side of the market that is more inelastic.
C)​falls disproportionately on the side of the market that is closer to unit elastic.
D)​is not impacted by the relative elasticities of supply and demand.

Quizplus · Accepted Answer

When a good is taxed, the tax burden falls disproportionately on the side of the market that is more inelastic. This is because inelastic goods have a relatively higher demand and supply does not respond much to changes in price, so the market participants have to absorb more of the tax burden. On the other hand, elastic goods have a relatively lower demand, and suppliers can adjust their prices easily, so the tax burden falls more on the consumers. When the elasticities of supply and demand are closer, the tax burden is more evenly distributed.

When a Good Is Taxed, the Tax Burden