Question

An excise tax levied on a product will impose a smaller relative burden on consumers (and a larger relative burden on sellers) when: Group of answer choices the supply of the product is relatively inelastic. the supply of the product is relatively elastic. the demand for the product is relatively elastic. either a or c is true.

Answer 1

Answer: the demand for the product is relatively elastic

Step-by-step explanation:

When a product is said to be Elastic, it means that for every 1% change in price, there is a more than 1% change in the Quantity Demanded of that product. For example, if the price of a good rises by 2% and the Quantity Demanded drops by 2.5% that good is considered Elastic.

Now, if an excise tax is intruduced on a good that is Elastic that means that the price would rise and the demand would drop. This will impose a larger burden on suppliers because in an attempt to keep the price relatively stable, they will absorb most of the tax thus reducing their profitability in order to avoid a more than proportional decrease in Quantity Demanded.