When a tax is imposed on a good for which both demand and supply are very elastic,
A)sellers effectively pay the majority of the tax.
B)buyers effectively pay the majority of the tax.
C)the tax burden is equally divided between buyers and sellers.
D)None of the above is correct;further information would be required to determine how the burden of the tax is distributed between buyers and sellers.

Question

Quizplus · Accepted Answer

When both demand and supply are very elastic, it means that buyers and sellers have many substitutes available in the market. Therefore, if a tax is imposed on the good, both buyers and sellers can easily switch to other substitutes, and the price of the good will not change much. In this case, it is difficult to determine how the burden of the tax is distributed between buyers and sellers. Hence, further information would be required to determine the answer.

When a Tax Is Imposed on a Good for Which