An excise tax is imposed on smartphones. If the elasticity of demand is 2 and the elasticity of supply is 1, we can predict that:
A) consumers will bear the full tax burden.
B) sellers will bear the full tax burden.
C) consumers will bear 2/3 of the tax burden.
D) sellers will bear 2/3 of the tax burden.

Question

Quizplus · Accepted Answer

When the elasticity of demand is greater than the elasticity of supply, sellers will bear a larger portion of the tax burden. In this case, since the elasticity of demand (2) is greater than the elasticity of supply (1), sellers will bear 2/3 of the tax burden.

An Excise Tax Is Imposed on Smartphones