I know the answer when it is price elastic, but what changes when it is price inelastic? Please explain and which option is it?

Question

Which of the following statement is correct?

A) Demand is more price inelastic than supply and consumers bear a larger portion of the tax burden.

B) Demand is more price inelastic than supply and suppliers near a larger portion of the tax burden.

C) Supply is more price inelastic than demand and consumers bear a larger portion of the tax burden.

D) supply is more price inelastic than demand and suppliers bear a larger portion of the tax burden.

Answer 1

If Demand is very steep and the supply very flat a large change in price is associated with a small change in quantity demanded. With the flat supply curve, a small change in quantity is associated with a really small change in costs. small change in price per unit. In the limiting case with elastic supply, The tax will be fully borne by the consumer..

Formulaicly,

Share of tax borne by supplier = E_S/(E_s-E_D). E denotes elasticity

The remainder is Borne by consumer = -E_D/(E_S-E_D) and note that demand

elasticity is negative (demand curves are downward sloping),

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