When the price elasticity of supply is _____ relative to the price elasticity of demand, then sellers bear _____ of the economic burden of a tax.Question 3Answera.small; noneb.large; a smaller sharec.small; alld.large; a bigger share
Question
When the price elasticity of supply is _____ relative to the price elasticity of demand, then sellers bear _____ of the economic burden of a tax.Question 3Answera.small; noneb.large; a smaller sharec.small; alld.large; a bigger share
Solution
The correct answer is b. large; a smaller share.
Here's why:
Price elasticity of supply measures how much the quantity supplied responds to changes in the price. If it's large, it means sellers are very responsive to price changes - they can easily increase or decrease the quantity they supply when prices change.
On the other hand, price elasticity of demand measures how much the quantity demanded changes with price. If this is relatively smaller, it means buyers are not as responsive to price changes - they don't significantly change the quantity they demand when prices change.
So, if the price elasticity of supply is large relative to the price elasticity of demand, sellers can more easily adjust their quantity supplied in response to a tax, shifting more of the tax burden onto buyers. Therefore, sellers bear a smaller share of the economic burden of a tax.
Similar Questions
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
Which statement is true?Group of answer choicesThe economic incidence of taxation falls more heavily on the more inelastic side of the market.In general the burden of the tax falls on the more elastic side of the marketIn general the burden of the tax falls on the side of the market who is legally responsible for paying the tax.The economic incidence of taxation falls fully on the sellers if supply is perfectly elastic and/or if demand is perfectly inelastic.None of the statements are true.
6. The economic incidence of a tax is larger on consumers: (i) The larger is the elasticity of demand relative to the elasticity of supply. (ii) The more salient is the tax. (iii) The less salient is the tax. (iv) The more inelastic is supply.
At high price levels, demand tends to be ________ and the price effect is ________, relative to the output effect.Question 9Answera.inelastic; largeb.elastic; smallc.inelastic; small
The tax burden is mainly borne by the producers if the supply is more elastic than the demand.
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