Question

When a tax is imposed on a good for which the supply is relatively elastic and the demand is relatively inelastic,

a. buyers of the good will bear most of the burden of the tax.
b. sellers of the good will bear most of the burden of the tax.
c. buyers and sellers will each bear 50 percent of the burden of the tax.
d. both equilibrium price and quantity will increase.

Answer 1

a. buyers of the good will bear most of the burden of the tax.

Step-by-step explanation:

When a tax is imposed on a good for which the supply is relatively elastic and the demand is relatively inelastic, buyers or consumers of the good will bear most of the burden of the tax.

However, when tax is imposed on a good whose supply is relatively inelastic and the demand for the goods is relatively elastic, the producers or sellers would be responsible for the tax burden of the goods.

Generally, tax revenues are larger with respect to the inelasticity of demand and supply.