-Refer to Figure 4 -11. Suppose the market is initially in equilibrium at price P₀and then the government imposes a tax on every unit sold. Which of the following statements best describes the impact of the tax? A) The consumer will bear a greater share of the tax burden if the demand curve is D₁. B) The consumer's share of the tax burden is the same whether the demand curve is D₀or D₁. C) The consumer will bear the entire burden of the tax if the demand curve is D₀and the producer will bear the entire burden of the tax if the demand curve is D₁. D) The consumer will bear a greater share of the tax burden if the demand curve is D₀.

Question

Quizplus · Accepted Answer

The share of the tax burden between consumers and producers depends on the elasticity of demand and supply. A more inelastic demand curve (D₁) means consumers are less responsive to price changes, thus bearing a greater share of the tax burden.