Question

Suppose the price elasticity of demand is relatively elastic and the price elasticity of supply is relatively inelastic in a specific market. If an excise tax is imposed on this good, who will bear the greater burden of the tax?

a. government
b. consumers
c. producers
d. both consumers and producers equally

Answer 1

c. producers

Step-by-step explanation:

Since it is given in the question that the price elasticity of demand is relatively elastic but the price elastic of supply is relatively inelastic but if the excise tax is imposed on the goods so the greater burden of the tax would be on the producers as the supply is inelastic so the producers could not changed much but if we compare to the consumers, the consumer could change the demand more than before due to the elastic in demand.

So, the correct option is c.