Question

If a tax is imposed on a good where both supply and demand are somewhat elastic, but demand is more elastic than supply, the burden of the tax will be borne
A. by producers alone.
B. by consumers and producers equally.
C. by consumers alone.
D. mostly by producers but partially by consumers.
E. mostly by consumers but partially by producers.

Answer 1

Answer:

The answer is D - mostly by producers but partially by consumers.

Explanation:

Tax incidence depends on the relative price elasticity of demand and supply. When supply is more elastic than demand, buyers bear most of the tax burden but when demand is more elastic than supply, producers bear most of the cost of tax and consumers bear less.