Question

When demand is very elastic then if price rise then the quantity demanded will decrease in a big amount. When supply is very inelastic then if the sellers' received amount fall due to tax then the quantity supplied will not decrease too much. Hence if demand is very elastic and supply is very inelastic then consumers will bear a small amount of whole tax burden where producers will bear a large amount of whole tax burden. Now, if demand is very inelastic then if price rise then the quantity demanded will not decrease too much. When supply is very elastic then if the sellers' received amount fall due to tax then the quantity supplied will decrease in a big amount. Hence if demand is very inelastic and supply is very elastic then consumers will bear a large amount of whole tax burden where producers will bear a small amount of whole tax burden. (200 words)

Answer 1

Answer - Yes , this is the fact that if a tax is levied , the elasticity of demand and supply will decide who will bear the burden of tax. If the demand is more elastic than supply , imposing tax on consumer will increase the price and thus decrease the demand and total revenue. Hence the producer will this tax himself , so that he does not have to face the decrease in revenue. The supply will not change much due to increased cost as it is less elastic. Hence if the demand is more elastic than supply , tax burden will be taken over by the producer himself.

In the other scenario , if the supply is greater elastic than the demand , if the cost of supply increases due to tax , supply will be more affected. Whereas if tax is imposed on demand , it being lesser elastic will be less affected. Hence in the case where the supply is more elastic , the burden of tax is borne by the consumer and not producer. This will not decrease the revenue.