PRC-3 · Chapter 11 · Question 41 of 57
If the government imposes a new tax on a good with highly elastic demand, who will bear the majority of the tax burden (incidence)?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) The producers (suppliers)
Explanation
If demand is highly elastic, consumers will refuse to pay higher prices and will switch products. To retain sales, producers must absorb the majority of the tax burden.
More Elasticity of Demand and Supply MCQs
- Q43Which of the following products is likely to have the lowest price elasticity of demand?
- Q44What is the shape of a demand curve that has a strictly constant slope throughout?
- Q45If a geometric supply schedule has a price elasticity of supply exactly equal to 1 at all points, its graph will be:
- Q46The elasticity of supply for highly perishable agricultural goods (like fresh milk or ripe strawberries) on market day is generally:
- Q47Because durable manufactured goods (like televisions) can be easily stored in warehouses without spoiling while waiting for prices to…