In the graph below, a tax increase would be paid:
A)largely by the sellers.
B)largely by the buyers.
C)equally by the sellers and buyers.
D)by the government.

Question

In the graph below, a tax increase would be paid: 
A)​largely by the sellers. 
B)​largely by the buyers. 
C)​equally by the sellers and buyers. 
D)​by the government.

Quizplus · Accepted Answer

The graph shows that the demand curve is relatively steep (inelastic) while the supply curve is relatively flat (elastic). This means that buyers are not very responsive to changes in price, while sellers are more responsive. Therefore, a tax increase would be largely passed on to the buyers in the form of higher prices, rather than absorbed by the sellers.

In the Graph Below, a Tax Increase Would Be Paid