Question

The greater the price elasticity of supply and demand

the more effective a tax will be at raising revenue

the more the consumer will bear the burden of an excise tax

the more effective a tax will be at reducing the equilibrium quantity

Answer 1

the more effective a tax will be at reducing equilibrium quantity.

​​​​​​When the elasticity of demand and supply is high, the change in quantity for a given change in price is high.

When a tax is levied, it reduces the price received by producers and increases the price paid by consumer.

Since the elasticity of demand is high, there will be a higher decrease in the quantity demanded by consumers.

Elasticity of supply is also high. So, the decrease in quantity supplied is also High.

So, as a result of tax, both quantity demanded and quantity supplied decrease by a high amount. So, equilibrium quantity traded will fall by a high amount.

Therefore, higher elasticity of demand and supply decreases the equilibrium quantity highly.

Hence, greater the elasticity of demand and supply, the more effective a tax will be at reducing the equilibrium quantity.