Question

How do supply and demand elasticities affect the burden of a sales tax?

Answer 1

The sales tax will depend on the relative slopes of the demand and supply curves. If the demand curve is very inelastic then it will be steeper and so the consumer's burden will be greater.The flatter the demand curve the consumers burden is reduced. Similarly the steeper the supply curve the burden of the tax falls mainly on the supplier and the flatter the supply curve the burden of the tax falls less on the supplier. The relative slopes of the demand and supply curves will thus determine the burden of a sales tax.