Question

The demand curve for good X is generally highly inelastic at and around the current price. If we assume that the supply curve is neither perfectly elastic nor perfectly inelastic, then who will pay the greater share of a tax placed on the production of good X?

Answer 1

the buyer

Step-by-step explanation:

Even though the burden of taxes is shared by both the suppliers and the consumers, depending on the elasticity of demand or supply, the share can be greater for one of them. Taxes always hit both sides because it increases the amount of money that consumers have to pay for a good and deceases the amount of money suppliers receive for their goods, but in this case, since the price elasticity of demand is very inelastic, consumers will suffer the most.

We can use gasoline as an example since its demand is highly inelastic and excise taxes on gas are frequent. Since the demand for gasoline is very price inelastic, consumers will keep buying it even if its price increases. The decease in quantity demanded is proportionally very small compared to the increase in price. So even though suppliers will be hit by marginally lower sales, consumers will be hit harder by the price increase.

Answer 2

The buyers will pay the greater share

Step-by-step explanation:

The burden of tax falls on the person with the less elasticity of demand or supply.

If demand (supply) is elastic, a small change in price has a greater effect on the quantity demanded (supplied).

If demand (supply) is inelastic, a small change in price has little or no effect on quantity demanded (supplied).

If demand (supply) is perfectly inelastic, price has no impact on the quantity demanded (supplied).

If supply is neither perfectly elastic nor perfectly inelastic, it means supply could either by elastic or inelastic. Demand on the other hand is highly inelastic, so consumers bear the greater burden of tax.

I hope my answer helps you