Producers will bear a larger burden of a sales tax if which statement is correct? a....

Producers will bear a larger burden of a sales tax if

which statement is correct?

a. demand is relatively elastic and supply is relatively inelastic.

b. demand is relatively inelastic and supply is relatively elastic.

c. both demand and supply are relatively inelastic.

d. both demand and supply are relatively elastic.

e. the tax is collected by firms rather than remitted directly to the government by consumers.

Expert Solution

The incidence of an excise tax is the rate which measure of who really bears the burden of the tax.

Irrespective of on whom tax is imposed, tax burden will be shared by both sellers and buyers.

The burden of tax falls more on the inelastic side, so if demand is relatively inelastic, then burden of tax falls more on buyers while burden of tax will be less on the sellers and vice-versa.

Hence it can be said that Producers will bear a larger burden of a sales tax if demand is relatively elastic and supply is relatively inelastic.

Hence option a is the correct answer.

Rahul Sunny answered 2 years ago

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