Question

Sellers of a product will bear the larger part of the tax burden, and buyers will bear a smaller part of the tax burden, when the Question 29 options: a) demand for the product is more elastic than the supply of the product. b) tax is placed on the buyers of the product. c) supply of the product is more elastic than the demand for the product. d) tax is placed on the sellers of the product.

Answer 1

C. The supply of the product is more elastic than the demand for the product.

Step-by-step explanation:

The effect of tax on goods depends on both the buyer and also the seller, but in a case where the supply is more elastic than such product demand, the tax tends to fall higher on the sellers end. In the tobacco example, the tax burden falls on the most inelastic side of the market. Also, when taxes on sales affect the equilibrium quantity, there are effects on economic welfare. You can see that as reductions in consumer surplus, reductions in producer surplus and dead weight loss. The size of these changes depends on the price elasticities of demand and supply.