Which of the following is true if a $2 per unit tax is levied on sellers of a good?
A)Buyers bear the brunt of the tax if the elasticity of demand is - 1.3 and the elasticity of supply is .6.
B)The price consumers pay will increase by $2 if the elasticity of demand is 0.
C)Buyers bear the brunt of the tax if the elasticity of demand is - .3 and the elasticity of supply is 1.6.
D)Dead weight loss will be smaller the more elastic demand.

Question

Quizplus · Accepted Answer

When the elasticity of demand is less than the elasticity of supply (|Ed| < |Es|), buyers bear the brunt of the tax. In this case, the absolute value of the elasticity of demand (0.3) is less than the absolute value of the elasticity of supply (1.6), so the burden falls on buyers. Option A is incorrect because the elasticity of demand (-1.3) is greater than the elasticity of supply (0.6), which means that sellers bear more of the tax burden. Option B is incorrect because if demand is perfectly inelastic (Ed=0), then the price consumers pay would increase by the full amount of the tax ($2) and not just by $2. Option D is false because the opposite is true: deadweight loss will be larger the more elastic demand.

Which of the Following Is True If a $2 Per