Question

Buyers of a good bear the larger share of the tax burden when the (i) supply is more elastic than the demand for the product. (ii) demand in more elastic than the supply for the product. (iii) tax is placed on the sellers of the product. (iv) tax is placed on the buyers of the product.

Answer 1

The correct answer is option i.

Step-by-step explanation:

Buyers or consumers of a good will bear the larger share of the tax burden when the demand is relatively inelastic or supply is more elastic than demand.

The imposition of tax will lead to an increase in the cost of production. The price of the product, as a result, will increase.

In case, the demand is inelastic an increase in the price of the product will cause the quantity demanded to decrease by a smaller amount. So the consumers will have to pay a higher price. Thus they share a larger burden.