Question

Who will bear the incidence of the tax? suppose the government imposes a tax on three products with differing demand elasticities. match the product to the group that will most likely bear the tax incidence?

Answer 1

If the price elasticity of demand is inelastic, then the incidence of tax will be greater on consumers, as producers can shift most of the tax on them by raising prices. Whereas if it was elastic, then it would be producers.