With regard to tax burdens, what does the "elasticity = escape" idea tell you?
A) that the curve (between demand and supply) that is relatively more elastic will bear less of the tax burden
B) that the curve (between demand and supply) that is relatively more inelastic will bear less of the tax burden
C) that the curve (between demand and supply) that is relatively more elastic will escape the tax burden entirely
D) that the ratio of the buyers' tax burden to the sellers' tax burden is always greater than 1

Question

Quizplus · Accepted Answer

The "elasticity = escape" idea suggests that the more elastic curve (demand or supply) will bear less of the tax burden. This is because when a tax is imposed, the price of the good will increase. If the demand is elastic (i.e. the buyers are sensitive to price changes), they will reduce their quantity demanded significantly, and this will lead to a decrease in the revenue generated from the tax. Hence, the burden of the tax will fall more on the suppliers. On the other hand, if the supply is more elastic (i.e. the sellers are sensitive to price changes), they will reduce their quantity supplied significantly, which will also lead to a decrease in the revenue generated from the tax. Hence, the burden of the tax will fall more on the buyers. Therefore, the curve that is more elastic will bear less of the tax burden.

With Regard to Tax Burdens, What Does the "Elasticity =