Question

The side of the market that is more inelastic:

• determines whether to shoulder the majority of the tax burden or pass it on.

• will bear more of the tax burden.

• will share an equal amount of the tax burden.

• will bear less of the tax burden.

Answer 1

Tax incidence is the manner in which the tax burden is divided between buyers and sellers .The tax incidence depends on the relative price elasticity of supply and demand.

More Elastic Supply and Less Elastic Demand

When supply is more elastic than demand, consumers will bear more of the burden of a tax than producers will. For example, if supply is twice as elastic as demand, producers will bear one-third of the tax burden and consumers will bear two-thirds of the tax burden.

More Elastic Demand and Less Elastic Supply

When demand is more elastic than supply, producers will bear more of the burden of a tax than consumers will. For example, if demand is twice as elastic as supply, consumers will bear one-third of the tax burden and producers will bear two-thirds of the tax burden.

The side of the market that is more inelastic will bear less burden as compared to side of market which is elastic.

SO (C) PART IS A CORRECT ANSWER