Question

The burden of a tax is shared by producers and consumers. Under what conditions will consumers pay most of the​ tax? Under what conditions will producers pay most of​ it? A. It depends on who is legally obligated to pay the tax. Typically consumers are required to pay the tax and therefore bear most of the burden. B. If demand is relatively more elastic than​ supply, consumers will pay more of the tax. C. If demand is relatively less elastic than​ supply, consumers will pay more of the tax. D. It depends on who is legally obligated to pay the tax. Typically producers are required to pay the tax and therefore bear most of the burden

Answer 1

The correct answer is option C.

Step-by-step explanation:

Imposition of tax causes the market equilibrium price to increase. This creates a tax wedge by increasing the price paid by the buyer and reducing the price received by the seller.

So the burden of tax is shared by both buyers and sellers. Who will share most of the burden depends on their elasticity.

If the demand is more inelastic, consumers will share most of the burden. If the supply is more inelastic, producers will bear most of the burden.