Question

10. The relationship between the price elasticity of demand/supply curves and the tax burden for buyers/sellers. Suppose buyers are more elastic than sellers. Who is going to bear more tax burden?

Answer 1

• When demand is more elastic than supply, seller's face a greater amount of tax burden than buyers.
• Similarly when supply is more elastic than demand, buyers face a greater amount tax burden than seller's.
• Given that, buyers are more elastic than seller's. This means that their demand keeps changing with respect to the price.
• That is when price increases their demand decreases and vice versa.
• Hence when they are more elastic than seller's, seller's bear most of the burden of the tax as they cannot share the burden of tax with the consumer's.