Question

If a tax is imposed on a market with inelastic demand and elastic supply, A. the burden of the tax will be shared equally between buyers and sellers. B. it is impossible to determine how the burden of the tax will be shared. C. buyers will bear most of the burden of the tax. D. sellers will bear most of the burden of the tax.

Answer 1

Answer: Option (C) is correct.

Explanation:

It was observed that market segment with more elasticity bears comparatively less burden of tax because market segment with more elasticity has the capability to adjust these changes so easily and that's why able to minimize their tax burden.

Hence, less elastic market segment bears most of the burden of tax.

And if both sides have same elasticity then the burden of tax will be shared equally.

Therefore, buyers will bear most of the burden of the tax.