If the government wishes to discourage smoking by tax increases, the buyer pays a larger share of the tax if the: Select one: O a. tax is imposed on the buyer O b. demand is price inelastic O c. supply is price inelastic O d. tax is imposed on the seller O e. price is higher
If the government wishes to discourage smoking by tax increases, the buyer pays a larger share of the tax if the: Select one: O a. tax is imposed on the buyer O b. demand is price inelastic O c. supply is price inelastic O d. tax is imposed on the seller O e. price is higher
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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If the government wishes to discourage smoking by tax increases, the buyer pays a larger share of the tax if the:
Select one:
O a. tax is imposed on the buyer
O b. demand is price inelastic
O c. supply is price inelastic
O d. tax is imposed on the seller
O e. price is higher
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Expert Solution
Step 1
Price Elasticity of Demand measures the percentage change in quantity demanded due to percentage change in price of a good or service. Price Elasticity of Supply measures the percentage change in quantity supplied due to percentage change in price of a good or service.
The relative price elasticity of supply or demand affects the incidence of tax. If demand is more elastic than supply then sellers will bear most of the tax burden. Also, if supply is more elastic than demand, then buyers will bear most of the tax burden.
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