Assume that the elasticities of supply and demand in an industry are both equal to 2 and that it is currently untaxed. A new tax imposed on the industry will:
A)be borne more by suppliers than demanders.
B)be borne more by demanders than suppliers.
C)be borne equally by demanders and suppliers.
D)not raise any added revenue for the government since demand is relatively elastic.

Question

Assume that the elasticities of supply and demand in an industry are both equal to 2 and that it is currently untaxed. A new tax imposed on the industry will:
A)​be borne more by suppliers than demanders.
B)​be borne more by demanders than suppliers.
C)​be borne equally by demanders and suppliers.
D)​not raise any added revenue for the government since demand is relatively elastic.

Quizplus · Accepted Answer

When the elasticities of supply and demand are equal, the tax burden tends to be shared equally between suppliers and demanders.

Assume That the Elasticities of Supply and Demand in an Industry