The share of the tax borne by the seller will be larger
The burden of a tax falls more on the side of the market that is less responsive to price. The seller's share is \( \dfrac{e_d}{e_d+e_s} \), where \( e_d \) is the absolute…
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The share of the tax borne by the seller will be larger
Answer and explanation
Correct answer C
The burden of a tax falls more on the side of the market that is less responsive to price. The seller's share is , where is the absolute elasticity of demand and the elasticity of supply, so it grows as demand becomes more elastic. With elastic demand, sellers cannot pass the tax on without losing many buyers. Less elastic demand, or more elastic supply, shifts the burden to buyers.
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UGC NET Economics