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Comparing elasticity of demand and it's effects on taxes?

Economics
Tutor: None Selected Time limit: 1 Day

In comparing relatively elastic demand to relatively inelastic demand, explain the difference between the government tax revenues collected and the economic burden of a tax in these two situations.

Apr 8th, 2015

If the demand is ELASTIC then the affect of government tax will lower the demand for a particular product significantly but have a negative affect on raising revenue. The economic burden of an elastic demand will fall more on the seller than the buyer since the seller must lower his price to keep the buyer interested.

If the demand is INELASTIC then the affect of government tax will not lower demand significantly but produce a significant increase in tax revenue. The economic burden of an inelastic demand will fall more on the buyer than the seller because the buyer must pay more for the same product to pay for the cost passed on by the seller.

Apr 8th, 2015

More specifically, if the demand is elastic, the seller must lower his profit to make up for the tax increase which raises the cost of his product.

Apr 8th, 2015

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Apr 8th, 2015
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Apr 8th, 2015
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