{"id":84853,"date":"2025-06-01T02:53:01","date_gmt":"2025-06-01T02:53:01","guid":{"rendered":"https:\/\/exam.pscnotes.com\/mcq\/?p=84853"},"modified":"2025-06-01T02:53:01","modified_gmt":"2025-06-01T02:53:01","slug":"consider-the-following-statements-about-impact-of-tax-a-tax-is-shi","status":"publish","type":"post","link":"https:\/\/exam.pscnotes.com\/mcq\/consider-the-following-statements-about-impact-of-tax-a-tax-is-shi\/","title":{"rendered":"Consider the following statements about impact of tax :\n  A tax is shi"},"content":{"rendered":"<p>Consider the following statements about impact of tax :<\/p>\n<ul>\n<li>A tax is shifted forward to consumers if the demand is inelastic relative to supply.<\/li>\n<li>A tax is shifted backward to producers if the supply is relatively more inelastic than demand.<\/li>\n<\/ul>\n<p>Which of the statements given above is\/are correct?<\/p>\n<p>[amp_mcq option1=&#8221;1 only&#8221; option2=&#8221;2 only&#8221; option3=&#8221;Both 1 and 2&#8243; option4=&#8221;Neither 1 nor 2&#8243; correct=&#8221;option3&#8243;]<\/p>\n<div class=\"psc-box-pyq-exam-year-detail\">\n<div class=\"pyq-exam\">\n<div class=\"psc-heading\">This question was previously asked in<\/div>\n<div class=\"psc-title line-ellipsis\">UPSC CDS-1 &#8211; 2018<\/div>\n<\/div>\n<div class=\"pyq-exam-psc-buttons\"><a href=\"\/pyq\/pyq-upsc-cds-1-2018.pdf\" target=\"_blank\" class=\"psc-pdf-button\" rel=\"noopener\">Download PDF<\/a><a href=\"\/pyq-upsc-cds-1-2018\" target=\"_blank\" class=\"psc-attempt-button\" rel=\"noopener\">Attempt Online<\/a><\/div>\n<\/div>\n<section id=\"pyq-correct-answer\">\nStatement 1: If demand is inelastic relative to supply, consumers are less responsive to price changes. When a tax is imposed, producers can pass on a larger portion of the tax burden to consumers in the form of higher prices without losing many buyers. Thus, the tax is shifted forward to consumers. This statement is correct.<br \/>\nStatement 2: If supply is relatively more inelastic than demand, producers are less able to reduce the quantity supplied in response to a lower price received after tax. When a tax is imposed, producers bear a larger portion of the tax burden because they cannot easily adjust output. The price received by producers falls significantly. Thus, the tax is shifted backward to producers. This statement is correct.<br \/>\nBoth statements accurately describe how the relative elasticity of demand and supply determines the incidence (burden) of a tax.<br \/>\n<\/section>\n<section id=\"pyq-key-points\">\nTax incidence is determined by the relative elasticity of demand and supply; the burden falls more on the less elastic side of the market.<br \/>\n<\/section>\n<section id=\"pyq-additional-information\">\nElasticity measures the responsiveness of quantity demanded or supplied to changes in price. Inelastic means less responsive, while elastic means more responsive. When a tax is imposed, the market price changes, and the tax wedge is split between consumers and producers. The side with lower elasticity faces a greater change in their price (price paid by consumers or price received by producers).<br \/>\n<\/section>\n","protected":false},"excerpt":{"rendered":"<p>Consider the following statements about impact of tax : A tax is shifted forward to consumers if the demand is inelastic relative to supply. A tax is shifted backward to producers if the supply is relatively more inelastic than demand. Which of the statements given above is\/are correct? [amp_mcq option1=&#8221;1 only&#8221; option2=&#8221;2 only&#8221; option3=&#8221;Both 1 &#8230; <\/p>\n<p class=\"read-more-container\"><a title=\"Consider the following statements about impact of tax :\n  A tax is shi\" class=\"read-more button\" href=\"https:\/\/exam.pscnotes.com\/mcq\/consider-the-following-statements-about-impact-of-tax-a-tax-is-shi\/#more-84853\">Detailed Solution<span class=\"screen-reader-text\">Consider the following statements about impact of tax :<br \/>\n  A tax is shi<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1087],"tags":[1114,1120,1196],"class_list":["post-84853","post","type-post","status-publish","format-standard","hentry","category-upsc-cds-1","tag-1114","tag-economic-development","tag-fiscal-policy-revenue","no-featured-image-padding"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v22.2 (Yoast SEO v23.3) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Consider the following statements about impact of tax :  A tax is shi<\/title>\n<meta name=\"description\" content=\"Statement 1: If demand is inelastic relative to supply, consumers are less responsive to price changes. When a tax is imposed, producers can pass on a larger portion of the tax burden to consumers in the form of higher prices without losing many buyers. Thus, the tax is shifted forward to consumers. This statement is correct. Statement 2: If supply is relatively more inelastic than demand, producers are less able to reduce the quantity supplied in response to a lower price received after tax. When a tax is imposed, producers bear a larger portion of the tax burden because they cannot easily adjust output. The price received by producers falls significantly. Thus, the tax is shifted backward to producers. This statement is correct. Both statements accurately describe how the relative elasticity of demand and supply determines the incidence (burden) of a tax. Tax incidence is determined by the relative elasticity of demand and supply; the burden falls more on the less elastic side of the market.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/exam.pscnotes.com\/mcq\/consider-the-following-statements-about-impact-of-tax-a-tax-is-shi\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Consider the following statements about impact of tax :  A tax is shi\" \/>\n<meta property=\"og:description\" content=\"Statement 1: If demand is inelastic relative to supply, consumers are less responsive to price changes. When a tax is imposed, producers can pass on a larger portion of the tax burden to consumers in the form of higher prices without losing many buyers. Thus, the tax is shifted forward to consumers. This statement is correct. Statement 2: If supply is relatively more inelastic than demand, producers are less able to reduce the quantity supplied in response to a lower price received after tax. When a tax is imposed, producers bear a larger portion of the tax burden because they cannot easily adjust output. The price received by producers falls significantly. Thus, the tax is shifted backward to producers. This statement is correct. Both statements accurately describe how the relative elasticity of demand and supply determines the incidence (burden) of a tax. Tax incidence is determined by the relative elasticity of demand and supply; the burden falls more on the less elastic side of the market.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/exam.pscnotes.com\/mcq\/consider-the-following-statements-about-impact-of-tax-a-tax-is-shi\/\" \/>\n<meta property=\"og:site_name\" content=\"MCQ and Quiz for Exams\" \/>\n<meta property=\"article:published_time\" content=\"2025-06-01T02:53:01+00:00\" \/>\n<meta name=\"author\" content=\"rawan239\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"rawan239\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"1 minute\" \/>\n<!-- \/ Yoast SEO Premium plugin. -->","yoast_head_json":{"title":"Consider the following statements about impact of tax :  A tax is shi","description":"Statement 1: If demand is inelastic relative to supply, consumers are less responsive to price changes. When a tax is imposed, producers can pass on a larger portion of the tax burden to consumers in the form of higher prices without losing many buyers. Thus, the tax is shifted forward to consumers. This statement is correct. Statement 2: If supply is relatively more inelastic than demand, producers are less able to reduce the quantity supplied in response to a lower price received after tax. When a tax is imposed, producers bear a larger portion of the tax burden because they cannot easily adjust output. The price received by producers falls significantly. Thus, the tax is shifted backward to producers. This statement is correct. Both statements accurately describe how the relative elasticity of demand and supply determines the incidence (burden) of a tax. Tax incidence is determined by the relative elasticity of demand and supply; the burden falls more on the less elastic side of the market.","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/exam.pscnotes.com\/mcq\/consider-the-following-statements-about-impact-of-tax-a-tax-is-shi\/","og_locale":"en_US","og_type":"article","og_title":"Consider the following statements about impact of tax :  A tax is shi","og_description":"Statement 1: If demand is inelastic relative to supply, consumers are less responsive to price changes. When a tax is imposed, producers can pass on a larger portion of the tax burden to consumers in the form of higher prices without losing many buyers. Thus, the tax is shifted forward to consumers. This statement is correct. Statement 2: If supply is relatively more inelastic than demand, producers are less able to reduce the quantity supplied in response to a lower price received after tax. When a tax is imposed, producers bear a larger portion of the tax burden because they cannot easily adjust output. The price received by producers falls significantly. Thus, the tax is shifted backward to producers. This statement is correct. Both statements accurately describe how the relative elasticity of demand and supply determines the incidence (burden) of a tax. Tax incidence is determined by the relative elasticity of demand and supply; the burden falls more on the less elastic side of the market.","og_url":"https:\/\/exam.pscnotes.com\/mcq\/consider-the-following-statements-about-impact-of-tax-a-tax-is-shi\/","og_site_name":"MCQ and Quiz for Exams","article_published_time":"2025-06-01T02:53:01+00:00","author":"rawan239","twitter_card":"summary_large_image","twitter_misc":{"Written by":"rawan239","Est. reading time":"1 minute"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"WebPage","@id":"https:\/\/exam.pscnotes.com\/mcq\/consider-the-following-statements-about-impact-of-tax-a-tax-is-shi\/","url":"https:\/\/exam.pscnotes.com\/mcq\/consider-the-following-statements-about-impact-of-tax-a-tax-is-shi\/","name":"Consider the following statements about impact of tax : A tax is shi","isPartOf":{"@id":"https:\/\/exam.pscnotes.com\/mcq\/#website"},"datePublished":"2025-06-01T02:53:01+00:00","dateModified":"2025-06-01T02:53:01+00:00","author":{"@id":"https:\/\/exam.pscnotes.com\/mcq\/#\/schema\/person\/5807dafeb27d2ec82344d6cbd6c3d209"},"description":"Statement 1: If demand is inelastic relative to supply, consumers are less responsive to price changes. When a tax is imposed, producers can pass on a larger portion of the tax burden to consumers in the form of higher prices without losing many buyers. Thus, the tax is shifted forward to consumers. This statement is correct. Statement 2: If supply is relatively more inelastic than demand, producers are less able to reduce the quantity supplied in response to a lower price received after tax. When a tax is imposed, producers bear a larger portion of the tax burden because they cannot easily adjust output. The price received by producers falls significantly. Thus, the tax is shifted backward to producers. This statement is correct. Both statements accurately describe how the relative elasticity of demand and supply determines the incidence (burden) of a tax. Tax incidence is determined by the relative elasticity of demand and supply; the burden falls more on the less elastic side of the market.","breadcrumb":{"@id":"https:\/\/exam.pscnotes.com\/mcq\/consider-the-following-statements-about-impact-of-tax-a-tax-is-shi\/#breadcrumb"},"inLanguage":"en-US","potentialAction":[{"@type":"ReadAction","target":["https:\/\/exam.pscnotes.com\/mcq\/consider-the-following-statements-about-impact-of-tax-a-tax-is-shi\/"]}]},{"@type":"BreadcrumbList","@id":"https:\/\/exam.pscnotes.com\/mcq\/consider-the-following-statements-about-impact-of-tax-a-tax-is-shi\/#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"Home","item":"https:\/\/exam.pscnotes.com\/mcq\/"},{"@type":"ListItem","position":2,"name":"UPSC CDS-1","item":"https:\/\/exam.pscnotes.com\/mcq\/category\/upsc-cds-1\/"},{"@type":"ListItem","position":3,"name":"Consider the following statements about impact of tax : A tax is shi"}]},{"@type":"WebSite","@id":"https:\/\/exam.pscnotes.com\/mcq\/#website","url":"https:\/\/exam.pscnotes.com\/mcq\/","name":"MCQ and Quiz for Exams","description":"","potentialAction":[{"@type":"SearchAction","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/exam.pscnotes.com\/mcq\/?s={search_term_string}"},"query-input":"required name=search_term_string"}],"inLanguage":"en-US"},{"@type":"Person","@id":"https:\/\/exam.pscnotes.com\/mcq\/#\/schema\/person\/5807dafeb27d2ec82344d6cbd6c3d209","name":"rawan239","image":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/exam.pscnotes.com\/mcq\/#\/schema\/person\/image\/","url":"https:\/\/secure.gravatar.com\/avatar\/761a7274f9cce048fa5b921221e7934820d74514df93ef195a9d22af0c1c9001?s=96&d=mm&r=g","contentUrl":"https:\/\/secure.gravatar.com\/avatar\/761a7274f9cce048fa5b921221e7934820d74514df93ef195a9d22af0c1c9001?s=96&d=mm&r=g","caption":"rawan239"},"sameAs":["https:\/\/exam.pscnotes.com"],"url":"https:\/\/exam.pscnotes.com\/mcq\/author\/rawan239\/"}]}},"amp_enabled":true,"_links":{"self":[{"href":"https:\/\/exam.pscnotes.com\/mcq\/wp-json\/wp\/v2\/posts\/84853","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/exam.pscnotes.com\/mcq\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/exam.pscnotes.com\/mcq\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/exam.pscnotes.com\/mcq\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/exam.pscnotes.com\/mcq\/wp-json\/wp\/v2\/comments?post=84853"}],"version-history":[{"count":0,"href":"https:\/\/exam.pscnotes.com\/mcq\/wp-json\/wp\/v2\/posts\/84853\/revisions"}],"wp:attachment":[{"href":"https:\/\/exam.pscnotes.com\/mcq\/wp-json\/wp\/v2\/media?parent=84853"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/exam.pscnotes.com\/mcq\/wp-json\/wp\/v2\/categories?post=84853"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/exam.pscnotes.com\/mcq\/wp-json\/wp\/v2\/tags?post=84853"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}