Question

The demand for gasoline is inelastic and the supply of gasoline in the winter is elastic. Therefore,

A. sellers bear most of the incidence of the tax.
B. buyers bear most of the incidence of the tax.
C. the government bears most of the incidence of the tax.
D. None of the above answers are correct.

Answer 1

B. buyers bear most of the incidence of the tax.

Step-by-step explanation:

If demand is inelastic, quantity demanded is insensitive to changes in price.

If supply is elastic, a small change in price has a great effect on quantity supplied. Quantity supplied is sensitive to changes in price.

If a tax is imposed on gasoline, the incidence (who pays for the tax) can be beqred by the consumers because they have an inelastic demand. If the price of gasoline rises , the quantity demanded doesn't change.

If the tax incidence was borne by the suppliers, the quantity supplied would drop.

I hope my answer helps you.