Answer to Question #93950 in Macroeconomics for Amy Pike

Question

. Mayor George Henry has a problem. He doesn’t want to anger voters by taxing them because he wants to be reelected, but the town of Gapville needs more revenue for its schools. He has a choice between taxing tickets to professional basketball games or food. If the demand for food is relatively inelastic while the supply is relatively elastic, and if the demand for professional basketball games is relatively elastic while the supply is relatively inelastic, in which case would the tax burden fall primarily on consumers? In which case would the tax burden fall primarily on producers?

Answer 1

The effect of tax burden on consumers and producers if demand for good is inelastic. Supply for food is elastic, supply for basketball games is inelastic. Tax incidence is the term which explains the separation of tax burden for both the buyers and sellers. The tax incidence is also known as tax burden. If the demand for the product is less elastic then supply, then the burden of tax would fall more on consumers which means the consumers will pay more of the tax portion.