Question

Sellers of a good bear the larger share of the tax burden when a tax is placed on a product for which the:

(i) supply is more elastic than the demand.
(ii) demand in more elastic than the supply.
(iii) tax is placed on the sellers of the product.
(iv) tax is placed on the buyers of the product. Group of answer choices

Answer 1

The correct answer is option ii.

Step-by-step explanation:

In the case of imposition of tax on a good, the suppliers will bear the greater share of burden if the demand is more elastic than the supply.

The imposition of tax leads to an increase in the price of the product. If the demand is more elastic, the quantity demanded will decrease to a greater extent with the increase in price.

The supply being less elastic will change to a smaller extent, thus a greater tax burden will be borne by the suppliers.