The price elasticity of demand for tambourines is 0.25, and the price elasticity of supply for tambourines is 2. What happens if an excise tax is placed on the sellers of tambourines?
A) The entire burden of the tax falls on the sellers.
B) The incidence of the tax falls more heavily on the buyers.
C) Sellers pay the entire burden of the tax.
D) Buyers and sellers share the incidence of this tax equally.

Question

Quizplus · Accepted Answer

Since the price elasticity of demand for tambourines is lower (0.25) than the price elasticity of supply (2), this means consumers are less responsive to price changes than sellers. Therefore, when an excise tax is placed on sellers, the incidence of the tax falls more heavily on buyers because they are less likely to reduce their quantity demanded in response to the price increase resulting from the tax.

The Price Elasticity of Demand for Tambourines Is 0