New SIDBI Grade A New Batch Starts on Nov 18

    Register

    Question

    Suppose that in a particular market, the supply curve is highly elastic and the demand curve is highly inelastic. If a tax is imposed in this market, then 

    A the buyers will bear a greater burden of the tax than the sellers Correct Answer Incorrect Answer
    B the sellers will bear a greater burden of the tax than the buyers. Correct Answer Incorrect Answer
    C the buyers and sellers are likely to share the burden of the tax equality Correct Answer Incorrect Answer
    D the buyers and sellers will not share the burden equally, but it is impossible to determine who will bear the greater burden of the tax without more information Correct Answer Incorrect Answer

    Solution

      There is direct relationship between elasticity of supply and burden bear by buyer. Also, there is direct relationship between elasticity of demand and burden bear by seller.   If supply is highly elastic, then buyer will bear the greater burden than sellers.

    Practice Next