If the demand for a product is inelastic but the supply is elastic, the ________ will...

If the demand for a product is inelastic but the supply is elastic, the ________ will bear the tax incidence.

A) government

B) producer

C) consumer

Expert Solution

Option C is correct - Consumer

When the demand is inelastic but the supply is elastic, consumers bear the tax incidence.

The elasticity of demand is the responsiveness of change in quantity demanded due to changes in prices of the goods.

Thus when the demand is inelastic that means that the consumers are less willing to change their quantity demanded even with any price change (increase or decrease in prices). On the other hand, supply is elastic which means it varies with the change in prices of the goods.

Thus, even with an increase in prices, consumers will pay high prices and get the quantity they demanded before (no change in quantity demanded), this will create a benefit for the sellers to charge higher prices to them. Thus, the share of the tax burden on that good imposed by the government will be on the consumers (since they are ready to pay higher price for their products).

Rahul Sunny answered 2 years ago

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