If the elasticity of demand is 1 in absolute value, and the elasticity of supply is 1 in absolute value, how much of a tax burden 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.
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, the tax burden is shared equally between the buyer and seller. This means that the price will increase by the full amount of the tax, and both the buyer and seller will pay half of the tax burden.

If the Elasticity of Demand Is 1 in Absolute Value