Question

Illustrate with the help of a diagram, higher the price elasticity of demand, larger will be the per unit tax burden borne by producers. ​

Answer 1

Answer:

Tax incidence is the manner in which the tax burden is divided between buyers and sellers.

The tax incidence depends on the relative price elasticity of supply and demand. When supply is more elastic than demand, buyers bear most of the tax burden. When demand is more elastic than supply, producers bear most of the cost of the tax.

Tax revenue is larger the more inelastic the demand and supply are.

The burden of tax

Depending on the circumstance, the burden of tax can fall more on consumers or on producers.

In the case of cigarettes, for example, demand is inelastic—because cigarettes are an addictive substance—and taxes are mainly passed along to consumers in the form of higher prices.

Answer 2

Explanation:

Illustrate with the help of a diagram, higher the price elasticity of demand, larger will be the per unit tax burden borne by producers.