When the price elasticity of demand is relatively __________ elastic than the price elasticity of supply, the burden of an excise tax falls mainly on __________.1 pointas; buyers.less; sellers.more; buyers.more; sellers
Question
When the price elasticity of demand is relatively __________ elastic than the price elasticity of supply, the burden of an excise tax falls mainly on __________.1 pointas; buyers.less; sellers.more; buyers.more; sellers
Solution
When the price elasticity of demand is relatively more elastic than the price elasticity of supply, the burden of an excise tax falls mainly on sellers.
Here's why:
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Price elasticity of demand measures how responsive quantity demanded is to a change in price. If it's more elastic, it means consumers are more sensitive to price changes.
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Price elasticity of supply measures how much the quantity supplied responds to changes in the price. If it's less elastic, it means producers are less able to respond quickly to price changes.
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If demand is more elastic than supply, consumers will buy less when the price rises (due to the tax), and more when the price falls.
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On the other hand, if supply is less elastic, producers can't reduce their output as quickly or as much in response to a price increase.
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Therefore, if an excise tax is imposed, producers (sellers) will bear more of the burden because they can't adjust their quantity supplied as easily or quickly as consumers can adjust their quantity demanded.
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