When the supply is regular and the demand is fully elastic, who is responsible for paying the taxes?
Who does bear the tax burden when the demand is perfectly elastic and supply is of normal shape?
Share
Lost your password? Please enter your email address. You will receive a link and will create a new password via email.
Please briefly explain why you feel this question should be reported.
Please briefly explain why you feel this answer should be reported.
Please briefly explain why you feel this user should be reported.
When the supply is regular and the demand is fully elastic, who is responsible for paying the taxes?
In a market scenario where demand is perfectly elastic and supply has a normal (upward-sloping) shape, the tax burden falls predominantly, if not entirely, on the suppliers.
Perfectly Elastic Demand: When demand is perfectly elastic, consumers are highly sensitive to price changes. A perfectly elastic demand curve is horizontal, indicating that consumers will only buy a certain quantity at one price and no quantity at any higher price.
Normal Supply Curve: A normal supply curve slopes upward, indicating that suppliers are willing to offer more goods for sale as prices rise.
Tax Burden on Suppliers: In this scenario, if a tax is imposed, suppliers cannot pass any of the tax burden onto consumers in the form of higher prices because consumers would cease to purchase the product altogether (due to the perfectly elastic demand). Therefore, suppliers have to bear the full burden of the tax, absorbing it in the form of reduced profits or increased costs.