Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
If demand is elastic, consumers bear a larger burden of the tax.
B
If demand is inelastic, consumers bear a larger burden of the tax.
C
Price elasticity of demand does not affect tax incidence.
D
The burden is equally shared regardless of elasticity.
Understanding the Answer
Let's break down why this is correct
Answer
The price elasticity of demand measures how much the quantity demanded of a good changes when its price changes. If demand is elastic, consumers are very responsive to price changes, meaning they will buy much less if prices go up. In contrast, if demand is inelastic, consumers will continue to buy similar amounts even if prices increase. When a tax is imposed on a good, the burden of that tax is shared between consumers and producers. For example, if a tax is placed on cigarettes, which have inelastic demand, consumers will bear a larger share of the tax burden because they are less likely to reduce their purchases significantly despite the higher price.
Detailed Explanation
When demand is inelastic, consumers really need the good. Other options are incorrect because This option suggests that if demand is elastic, consumers pay more tax; This option claims that elasticity doesn't matter for tax burden.
Key Concepts
price elasticity of demand
tax incidence
consumer burden
Topic
Elasticity and Tax Incidence
Difficulty
hard level question
Cognitive Level
understand
Ready to Master More Topics?
Join thousands of students using Seekh's interactive learning platform to excel in their studies with personalized practice and detailed explanations.