Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
A more elastic demand means consumers bear a larger share of the tax burden.
B
If supply is more elastic than demand, producers will bear a larger share of the tax.
C
The incidence of a tax can affect market efficiency and lead to deadweight loss.
D
A perfectly inelastic supply results in consumers bearing the entire tax burden.
E
Taxes are always shared equally between consumers and producers, regardless of elasticity.
Understanding the Answer
Let's break down why this is correct
Answer
Elasticity refers to how much the quantity demanded or supplied of a product changes when its price changes. Tax incidence is about how the burden of a tax is shared between buyers and sellers. When demand is elastic, consumers are sensitive to price changes, and sellers may bear more of the tax burden to keep prices lower. Conversely, if demand is inelastic, consumers are less sensitive to price changes, allowing sellers to pass more of the tax onto consumers. For example, if a cigarette tax is imposed and demand is inelastic, smokers will still buy cigarettes despite the higher price, meaning they bear most of the tax burden.
Detailed Explanation
Other options are incorrect because This statement is wrong because when demand is elastic, consumers can easily switch to other products; This is incorrect.
Key Concepts
Elasticity
Tax Incidence
Topic
Elasticity and Tax Incidence
Difficulty
easy level question
Cognitive Level
understand
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