Suppose the price elasticity of demand is 3.0 and the price elasticity of supply is 0.08. The incidence of an excise tax
A) falls primarily on consumers.
B) falls primarily on producers.
C) is shared evenly by consumers and producers.
D) falls entirely on producers.

Question

Quizplus · Accepted Answer

The incidence of an excise tax falls more on the side of the market that is less elastic. Since the price elasticity of supply (0.08) is much lower than the price elasticity of demand (3.0), producers bear a larger share of the tax burden.

Suppose the Price Elasticity of Demand Is 3