Who will bear the burden of tax if the tax is collected from the supplies, if...

Who will bear the burden of tax if the tax is collected from the supplies, if A. Supply is perfectly elastic? B. Supply is perfectly inelastic? C. Demand is perfectly elastic? D. Demand is perfectly inelastic?

Expert Solution

If the tax is collected from suppliers, and, if:

The supply is perfectly elastic, then the suppliers will decrease the quantity supplied easily at a decreased price and hence the burden will fall on the consumers. This is because the suppliers will reduce the supply significantly due to imposition of tax.
The supply is perfectly inelastic, then the suppliers will not be able to decrease the quantity supplied at a decreased price and then expressed the burden will fall on the suppliers.
The demand is perfectly elastic, then a negligible increase in price will cause the quantity demanded to fall drastically and thus the incidence will fall on the suppliers. This is because the consumers will reduce their consumption significantly due to imposition if tax.
The demand is perfectly inelastic, then no matter how much the price increases, the consumers will not decrease their quantity demanded and hence the burden of tax will fall on the consumers.

Rahul Sunny answered 2 years ago

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