Question

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

a. supply is more elastic than the demand.
b. demand in more elastic than the supply.
c. tax is placed on the sellers of the product.
d. tax is placed on the buyers of the product.

Answer 1

b. demand in more elastic than the supply.

Step-by-step explanation:

Elasticity is defines as the measure of responsiveness of quantity demanded and supplied to changes in price.

In a situation where demand is more elastic than supply and tax is imposed, the suppliers can bear more cost due to tax without the quantity changing by much.

On the other hand when taxes are applied if sellers want to move it to buyers that have elastic demand, it will result in a big fall in the quantity demanded.

So the seller's bear the cost in this scenario because demand is elastic and will fall with small price increase.