The burden of a tax is more likely to fall on consumers when:
Correct answer: A. Demand is relatively inelastic compared with supply
- A. Demand is relatively inelastic compared with supply
- B. Demand is perfectly elastic in every market
- C. The tax is collected from a firm's accountant
- D. Supply is completely unaffected by prices
Explanation
When demand is relatively inelastic, consumers reduce quantity demanded only slightly after a price increase, so they bear a larger share of the tax through higher prices. Legal responsibility for remitting a tax does not determine its final economic incidence.
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Government revenue and expenditure are analysed through taxation, public borrowing, budgets, subsidies, transfers and public debt. The topic explains how fiscal policy affects resource allocation, income distribution, economic stability and growth, while distinguishing direct from indirect taxes, progressive from regressive taxation, and public goods from goods supplied by private markets.
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