Asked by Temiya Fisher on Jul 08, 2024
Verified
Producers in a particular market will bear the greater burden of an excise tax:
A) the more price-elastic the demand is relative to supply.
B) the less price-elastic demand is relative to supply.
C) if demand has the same price elasticity as supply.
D) regardless of the price elasticity of demand or supply.
Price-Elastic Demand
The characteristic of demand for a good indicating that a change in price results in a relatively larger change in the quantity demanded.
Excise Tax
A tax on the sale or use of specific products or transactions, typically integrated directly into the cost of the good.
Price Elasticity
A measure of how much the quantity demanded of a good responds to a change in the price of that good, often influenced by the availability of substitutes.
- Gain insight into the notion of tax incidence and the determinants that affect how the tax burden is shared among consumers and producers.
- Comprehend the concept of elasticity and its effects on the allocation of taxes.
Verified Answer
RK
rafatu kasimuJul 10, 2024
Final Answer :
A
Explanation :
The more price-elastic the demand is relative to supply, the greater the burden of the excise tax will be on the producers. This is because when demand is more elastic, consumers will be more likely to shift their consumption to substitute products or reduce their overall demand in response to a price increase caused by the tax. As a result, producers will have less pricing power and may have to absorb more of the tax themselves in order to maintain their sales volume.
Learning Objectives
- Gain insight into the notion of tax incidence and the determinants that affect how the tax burden is shared among consumers and producers.
- Comprehend the concept of elasticity and its effects on the allocation of taxes.