Given an upward sloping supply curve, the more inelastic is demand, the greater the fraction of the burden of taxation that is borne by consumers.

Question

Quizplus · Accepted Answer

When demand is more inelastic, it means that consumers are less responsive to changes in price. Therefore, if taxes increase the price of the product, consumers will continue to buy it at a similar quantity, meaning that they will bear most of the burden of taxation. On the other hand, when demand is more elastic, consumers are more sensitive to price changes and may react by reducing their consumption, meaning that the burden of taxation is more likely to be shifted towards producers.

Given an Upward Sloping Supply Curve, the More Inelastic Is