Question

if a tax is used to correct the deadweight loss, under what conditions is the consumer...

if a tax is used to correct the deadweight loss, under what conditions is the consumer likely to pay more of the tax?

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Answer #1

Answer - If the tax is imposed in order to correct the deadweight loss in the market , the burden to pay the tax can fall on producer , consumer or both.

The consumer will pay the more portion of the tax , if the nature of the demand in the market is inelastic. The burden of tax here will be shifted from producer to the consumer. As a result of the inelastic nature of demand , the imposition of tax will not reduce the demand and hence there will be no loss of revenue. Hence burden of tax will fall more on consumer.

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