📚 Learning Guide
Tax Burden and Consumer Behavior
medium

When demand for a good is elastic, the tax burden is primarily borne by __________, while inelastic demand results in a greater burden on __________.

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Learning Path
Learning Path

Question & Answer
1
Understand Question
2
Review Options
3
Learn Explanation
4
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Choose the Best Answer

A

producers; consumers

B

consumers; producers

C

both equally; both equally

D

consumers; consumers

Understanding the Answer

Let's break down why this is correct

Answer

When demand for a good is elastic, it means that consumers are very responsive to price changes. If the price increases due to a tax, many consumers may choose to buy less or switch to alternatives, so the seller cannot easily pass on the cost of the tax. This results in the tax burden being primarily borne by the producers, as they have to absorb the higher costs to keep sales up. On the other hand, when demand is inelastic, consumers will continue to buy the good even if the price rises because they need it or have no substitutes. In this case, the tax burden falls more on consumers, as they are less likely to reduce their purchases despite the higher prices.

Detailed Explanation

When people can easily switch to other products, producers take on more of the tax. Other options are incorrect because This answer suggests that consumers pay more when demand is elastic; This option implies that the tax burden is shared equally.

Key Concepts

Tax Incidence
Elasticity of Demand
Market Behavior
Topic

Tax Burden and Consumer Behavior

Difficulty

medium level question

Cognitive Level

understand

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