Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Consumers of good X will bear a larger portion of the tax burden than consumers of good Y.
B
Producers of good X will bear a larger portion of the tax burden than consumers of good Y.
C
The tax burden on consumers will be smaller for good X than for good Y.
D
The tax burden will be equally shared between consumers of both goods.
Understanding the Answer
Let's break down why this is correct
Answer
In a market, when we say that the demand for good X is more elastic than for good Y, it means that consumers for good X are more sensitive to price changes. If a tax is placed on good X, consumers will likely reduce their purchases significantly because they can easily switch to alternatives or forgo the product altogether. On the other hand, since the demand for good Y is less elastic, consumers will continue to buy it even if the price increases due to the tax. This means that the burden of the tax will fall more on the producers of good X, as they will need to absorb more of the tax to keep consumers buying their product. For example, if a tax is added to a popular snack that has many alternatives (good X), people might stop buying it, while a necessary item like medicine (good Y) will still be purchased despite a tax increase.
Detailed Explanation
When demand is elastic, consumers are sensitive to price changes. Other options are incorrect because This suggests that consumers of good X pay more tax, but they actually buy less when prices rise; This option implies producers of good X pay more tax, but they can pass the tax onto consumers.
Key Concepts
Tax Incidence
Elasticity of Demand
Consumer Welfare
Topic
Tax Burden and Consumer Behavior
Difficulty
medium 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.