Question

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 incidence of the tax.
a. the government
b. producers
c. consumers and producers
d. consumers

1. highly inelastic
2. somewhat elastic
3. highly elastic

Answer 1

Answer:

a. Government - highly  Inelastic

b. producers - Somewhat elastic

c. consumers and producers -   Highly elastic  

d. consumers - Highly elastic

Explanation:

Inelastic demand is that which does not changes with the change in the price of any product.

Government oriented demand remains constant irrespective of pricing and hence it is highly inelastic while in case of producers and consumers, the demand may vary depending on the substitute availability in the market