Principles of Microeconomics, 7th Edition

Published by South-Western College
ISBN 10: 128516590X
ISBN 13: 978-1-28516-590-5

Chapter 6 - Part II - Supply, Demand, and Government Policies - Quick Check Multiple Choice: 6

Answer

d. supply is elastic, and demand is inelastic

Work Step by Step

In general, elasticity measures how the quantity demanded or quantity supplied of a good changes as a result of a change in price of that good. In other words, elasticity measures the willingness of buyers or sellers to leave the market when conditions become unfavorable. If a good has an inelastic demand, the quantity demanded of the good will not decrease much if the price increases. Even after the tax is imposed, which will raise the price of the good, buyers will still purchase almost as much of the product. On the other hand, since the supply of the good is elastic, producers will reduce production in much greater magnitude when the tax is imposed. In general, the tax burden is distributed based on how elastic the good is to consumers and producers. In this case, consumers have the most inelastic demand and will be most unlikely to leave the market if a tax is imposed, so they will bear the majority of the burden.
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