Question

Which of the following sentences about tax incidence is true? I. If demand is relatively elastic, producers will bear a greater burden of the tax than consumers. II. If supply is completely inelastic, producers will bear all the burden of the tax. III. If the supply curve is completely elastic, consumers will bear none of the burden of the tax. Group of answer choices II and III only. III only I, II and III. II only. I and II only.

Answer 1

I and II only

the relatively inelastic side of the market bears the greater burden of tax which also indicates that the relatively elastic site of market bears a lower tax burden. If demand is more elastic it means consumers will be face smaller tax burden and producers will bear greater tax burden. If demand is completely inelastic can consumers bear the entire tax burden. Similarly if supply is completely inelastic then producer will bear the entire tax burden.