Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Consumers bear a greater burden if demand is inelastic.
B
Sellers always bear the full burden regardless of demand elasticity.
C
An elastic demand means tax burden falls entirely on consumers.
D
The burden is equally shared between consumers and sellers regardless of elasticity.
Understanding the Answer
Let's break down why this is correct
Answer
The elasticity of demand refers to how sensitive consumers are to price changes for a product. When demand is elastic, a small increase in price leads to a large drop in the quantity demanded, meaning consumers are more likely to buy less if the price goes up. In this case, if a per-unit tax is imposed, producers might bear a larger share of the tax burden because they cannot raise prices too much without losing customers. On the other hand, if demand is inelastic, consumers are less sensitive to price changes, so producers can pass most of the tax onto consumers without losing many sales. For example, if a tax is added to a popular medicine that people need, the demand is likely inelastic, allowing producers to raise prices significantly without losing many buyers.
Detailed Explanation
When demand is inelastic, people still buy the product even if the price goes up. Other options are incorrect because This idea suggests sellers always pay the tax, but it depends on how much consumers want the product; This option wrongly says that consumers pay all the tax when demand is elastic.
Key Concepts
Elasticity of Demand
Taxation Impact on Market Behavior
Consumer and Seller Burden
Topic
Elasticity of Demand and Taxation
Difficulty
hard level question
Cognitive Level
understand
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