When demand is more inelastic than supply, consumers will usually bear:[Fill in the blank]

Question

BlackTom AI · Accepted Answer

Consumers are less responsive to price changes (more inelastic), so they bear a larger share of a small per‑unit tax than producers.

1. Relevant knowledge points and concepts
- Tax incidence: how a tax burden is divided between buyers and sellers depends on the relative price elasticities of demand and supply, not on who the tax is legally levied upon.
- Elasticity: more inelastic side (smaller absolute elasticity) changes quantity less when price changes and therefore absorbs more of the tax.
- Formula (linear approximation for small per‑unit tax): buyer share = Es / (Es + |Ed|), seller share = |Ed| / (Es + |Ed|), where Es is supply elasticity and Ed is demand elasticity.

2. Step‑by‑step reasoning
- Assume demand is more inelastic than supply, so |Ed| < Es.
- Apply the formula for tax incidence: buyer share = Es / (Es + |Ed|).
- Because Es is larger than |Ed|, Es/(Es+|Ed|) > 1/2, so buyers bear a greater fraction.

3. Numerical example (intermediate steps)
- Let Es = 2.0 and |Ed| = 0.5. Total = 2.0 + 0.5 = 2.5.
- Buyer share = 2.0 / 2.5 = 0.80 (80% of the tax).
- Seller share = 0.5 / 2.5 = 0.20 (20% of the tax).
- Thus consumers bear more of the per‑unit tax.

4. Why the correct answer is correct
- Because demand is relatively inelastic, consumers do not reduce quantity much when price increases, so sellers can pass most of the tax onto buyers as a higher price; mathematically the buyer fraction exceeds the seller fraction when |Ed| < Es.

5. Why other options are incorrect
- (a) “less of a small per‑unit tax” is the opposite of the true incidence when demand is more inelastic.
- (c) “exactly none of the tax” would require perfectly elastic demand (horizontal demand), which is not given.
- (d) “exactly all of the tax in every case” is false except in the special case of perfectly inelastic demand; it’s not generally true.

6. Conclusion
Therefore consumers will usually bear more of a small per‑unit tax than producers, matching answer b.

When demand is more inelastic than supply, consumers will usually bear:[Fill in the blank]单项选择题

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