Under normal circumstances a producer will bear the entire burden of taxation on his output if the?
-
A.
demand for his product is completely elastic -
B.
supply of his goods is more elastic than the demand -
C.
demand for his product is more elastic than the supply -
D.
production of his commodities is subject to diminishing returns -
E.
production of his commodities is subject to increase returns to scale
Correct Answer: Option C
Explanation
A term that describes when buyers and sellers divide a tax burden is known as tax incidence. Producers would usually bear the tax burden if demand is more elastic than supply (that is changes in demand as a result of changes in factors such as prices).
When supply is more elastic than demand, the tax burden falls on the buyers. (that is when supply changes as a result of changes in prices).