Answer to Question #182967 in Microeconomics for Noor

Question

Illustrate the impact of a specific tax imposed on producers who face a perfectly elastic demand. Who bears the burden of the tax? Would your answer change if the tax is imposed on consumers? Explain why.

Answer 1

Buyers bear the majority of the tax burden when supply is more elastic than demand, and manufacturers bear the majority of the tax burden when demand is more elastic than supply. The more inelastic demand and supply are, the higher the tax revenue.