Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
More elastic demand leads to a greater burden on consumers.
B
Less elastic demand leads to a greater burden on consumers.
C
Tax burden is always evenly split regardless of elasticity.
D
Elasticity of demand has no effect on tax incidence.
Understanding the Answer
Let's break down why this is correct
Answer
The elasticity of demand refers to how sensitive consumers are to changes in price. When demand is elastic, a small increase in price leads to a large drop in the quantity demanded. This means that if a tax is added to a product, consumers will likely buy much less of it, making it harder for sellers to pass the tax cost onto them. For example, if a luxury item is taxed, consumers might decide not to buy it at all, so sellers absorb more of the tax burden. On the other hand, if demand is inelastic, consumers will continue to buy the product despite the tax, allowing sellers to pass most of the tax onto consumers.
Detailed Explanation
When demand is less elastic, consumers are less sensitive to price changes. Other options are incorrect because Some might think that if demand is elastic, consumers pay more tax; It's a common belief that taxes are always shared equally.
Key Concepts
Elasticity of demand
Tax incidence
Market efficiency
Topic
Elasticity and Tax Incidence
Difficulty
easy level question
Cognitive Level
understand
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