Question

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

Answer 1

Explanation:

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