Asked by Dustin Godtfring on May 10, 2024
Verified
Assume the demand for automobile tires is highly elastic and that the supply is highly inelastic. The burden of a $2 excise tax on each tire will be
A) borne by resource suppliers that provide the inputs for manufacturing tires.
B) shared about equally by buyers and sellers of tires.
C) borne primarily by sellers of tires.
D) borne primarily by buyers of tires.
Excise Tax
A duty imposed on particular products, services, or actions, frequently intended to diminish their usage or to collect funds.
Elastic
Describes a situation where the demand for a product or service significantly changes in response to price changes.
Inelastic
A characteristic of demand or supply where the quantity demanded or supplied changes by a smaller percentage than changes in the price.
- Examine the influence of elasticity on the effectiveness of taxation and the allocation of tax liabilities.
Verified Answer
MS
Megan StewartMay 11, 2024
Final Answer :
C
Explanation :
When demand is highly elastic and supply is highly inelastic, the burden of an excise tax falls primarily on the sellers because consumers are more responsive to price changes and can easily switch to substitutes, leaving sellers to absorb most of the tax burden.
Learning Objectives
- Examine the influence of elasticity on the effectiveness of taxation and the allocation of tax liabilities.