Asked by Hunter Kinnett on May 06, 2024
Verified
Assume the demand for automobile tires is highly inelastic and that the supply is highly elastic.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 buyers of tires.
D) borne primarily by sellers of tires.
Excise Tax
A tax imposed on specific goods or services at purchase such as gasoline, tobacco, and alcohol.
Highly Inelastic
Describes a situation where the demand or supply for a good or service is hardly affected when the price changes.
Highly Elastic
Describes a situation where the demand or supply of a product changes significantly in response to changes in price.
- Comprehend the fundamentals of tax incidence and how the apportionment of tax liability is influenced by the elasticity of both demand and supply.
Verified Answer
BB
Brianna BowerMay 08, 2024
Final Answer :
C
Explanation :
When demand is highly inelastic and supply is highly elastic, the burden of the tax falls more on the buyers than the sellers. This is because buyers are less responsive to price changes compared to sellers. Therefore, the majority of the excise tax burden will be borne by buyers of tires.
Learning Objectives
- Comprehend the fundamentals of tax incidence and how the apportionment of tax liability is influenced by the elasticity of both demand and supply.