It is argued that “Elasticity of demand and supply curves determines who bears the tax
burden regardless of whether a tax was imposed on consumers or producers” Justify by
explaining who bears the tax burden when;
a)The demand curve is perfect elastic and tax isimposed on producers
b)The demand curve is perfect inelastic and tax is imposed on consumers
a) When the demand curve is perfectly elastic and the tax is imposed on producers, the producers will bear the entire burden of the tax. This is because the demand curve is perfectly elastic, meaning that any increase in price will cause the quantity demanded to drop to zero. Therefore, the producers will have to absorb the entire cost of the tax, as consumers will not be willing to pay any higher price.
b) When the demand curve is perfectly inelastic and the tax is imposed on consumers, the consumers will bear the entire burden of the tax. This is because the demand curve is perfectly inelastic, meaning that any increase in price will not cause the quantity demanded to change. Therefore, the consumers will have to absorb the entire cost of the tax, as producers will not be able to increase the price any further.