Question

In a certain region, demand for construction equipment is downward-sloping and elastic with respect to price, while supply is upward-sloping and relatively inelastic. If the state government imposes a tax on the sale of construction equipment, which of the following statements would be true about the effect of the tax?

More of the tax burden falls on consumers than on producers

More of the tax burden falls on producers than on consumers

Total consumer and producer surplus will be reduced by an amount equal to the tax revenue generated

None of the above

All of the above

Answer 1

If the state government imposes a tax on the sale of construction equipment,whose demand is elastic and supply relatively inelastic,more of the tax burden falls on consumers than on producers