The burden of a tax falls more heavily on the buyers in a market when ?
Correct answer: D. demand is inelastic, and supply is elastic
- A. both supply and demand are inelastic
- B. demand is elastic, and supply are inelastic
- C. both supply and demand are elastic
- D. demand is inelastic, and supply is elastic
Explanation
Buyers bear more of a tax when demand is inelastic and supply is elastic, because buyers reduce their purchases only slightly while sellers can adjust quantity more readily. Thus most of the tax is reflected in the price paid by buyers.
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Individual consumers, firms and markets are examined through demand and supply, elasticity, consumer choice, production, costs, revenue and the determination of prices and output. The topic also covers market structures such as perfect competition, monopoly and oligopoly, plus market failure, externalities and the distinction between microeconomic decisions and economy-wide outcomes.
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