[amp_mcq option1=”If both supply and demand are elastic” option2=”If both supply and demand are not elastic” option3=”If demand is inelastic but supply is elastic” option4=”If demand is elastic but supply is inelastic” correct=”option3″]<\/p>\n
The correct answer is: C. If demand is inelastic but supply is elastic.<\/strong><\/p>\n When demand is inelastic, a change in price will have a smaller effect on the quantity demanded. This means that if the government imposes a tax on a good with inelastic demand, the sellers will be able to pass on most of the tax to consumers in the form of higher prices.<\/p>\n When supply is elastic, a change in price will have a larger effect on the quantity supplied. This means that if the government imposes a tax on a good with elastic supply, the sellers will not be able to pass on as much of the tax to consumers in the form of higher prices.<\/p>\n Here is a diagram that illustrates the effect of a tax on a good with inelastic demand:<\/p>\n [Diagram of a demand curve with an inelastic demand curve and a tax imposed on the sellers. The tax causes the price to increase from P1 to P2, but the quantity demanded only decreases from Q1 to Q2.]<\/p>\n As you can see, the price increases by a larger amount than the quantity demanded decreases. This is because the sellers are able to pass on most of the tax to consumers.<\/p>\n Here is a diagram that illustrates the effect of a tax on a good with elastic demand:<\/p>\n [Diagram of a demand curve with an elastic demand curve and a tax imposed on the sellers. The tax causes the price to increase from P1 to P2, but the quantity demanded decreases from Q1 to Q3.]<\/p>\n As you can see, the price increases by a smaller amount than the quantity demanded decreases. This is because the sellers are not able to pass on as much of the tax to consumers.<\/p>\n","protected":false},"excerpt":{"rendered":" [amp_mcq option1=”If both supply and demand are elastic” option2=”If both supply and demand are not elastic” option3=”If demand is inelastic but supply is elastic” option4=”If demand is elastic but supply is inelastic” correct=”option3″]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[12],"tags":[],"class_list":["post-59474","post","type-post","status-publish","format-standard","hentry","category-economics","no-featured-image-padding"],"yoast_head":"\n