Figure 18-2 shows a demand curve and two sets of supply curves,one set more elastic than the other.
-Refer to Figure 18-2.If the government imposes an excise tax of $1.00 on every unit sold,the consumer's burden of the tax
A)is Pa - Pc under either supply curve.
B)is Pb - Pc under either supply curve.
C)is Pa - Pc if the supply curve is S0 and Pb - Pc if the supply curve is S1.
D)is Pa - Pd if the supply curve is S0 and Pb - Pe if the supply curve is S1.

Question

Figure 18-2 shows a demand curve and two sets of supply curves,one set more elastic than the other.
-Refer to Figure 18-2.If the government imposes an excise tax of $1.00 on every unit sold,the consumer's burden of the tax
A)is Pa - Pc under either supply curve. 
B)is Pb - Pc under either supply curve. 
C)is Pa - Pc if the supply curve is S0 and Pb - Pc if the supply curve is S1. 
D)is Pa - Pd if the supply curve is S0 and Pb - Pe if the supply curve is S1.

Quizplus · Accepted Answer

The consumer's burden of the tax is the difference between the price they would have paid without the tax (Pc) and the price they actually pay with the tax. The size of the tax will be the same regardless of which supply curve is in use, so we can ignore that distinction. However, the different supply curves will result in different equilibrium prices. With the more elastic supply curve (S1), the price increase will be smaller, so consumers will bear a smaller burden of the tax (Pb - Pc). With the less elastic supply curve (S0), the price increase will be larger, so consumers will bear a larger burden of the tax (Pa - Pc). Therefore, the correct answer is C.

Figure 18-2 Shows a Demand Curve and Two Sets of Supply