If the elasticity of demand is 1 in absolute value, and theelasticity of supply is 1 in absolute value, how much of a taxburden will the buyer bear relative to the seller?
A)The buyer will bear more of the tax burden than will the seller.
B)The seller will bear more of the tax burden than will the buyer.
C)The buyer and seller will share the tax burden equally.(True Answer )Correct
D)The buyer will not bear any of the tax burden since demand is unit elastic.

Question

Quizplus · Accepted Answer

When both the elasticity of demand and the elasticity of supply are equal to 1 in absolute value, it means that the burden of a tax will be shared equally between buyers and sellers. This is because both parties are equally responsive to price changes. Thus, the buyer and seller will share the tax burden equally.

If the Elasticity of Demand Is 1 in Absolute Value