A market in perfect competition is in equilibrium. Let the demand\'s price elast

Question

A market in perfect competition is in equilibrium. Let the demand's price elasticity be -1.25 and the price elasticity of the offer is 0.25. If a tax of $ 10 per unit is introduced, who will then carry the largest part of the tax burden?

A. Consumers, since demand is relatively more elastic than the supply

B. Consumers, then demand. is relatively more inelastic than the supply

C. Manufacturers, as the supply is relatively more elastic than demand.

D. The producers, as the supply is relatively more inelastic than demand.

Please show and explain

Explanation / Answer

Result: (B)

Explanation:

We know that price elasticity of the demand is always negative . The demand of a good is said to be relatively inelastic if elasticity is less than one.

The price of demand is -1.25 while that of supply is 0.25

i.e. magnitude of elasticity of demand is larger than that of supply.

So the demand is relatively more inelastic than the supply. And hence tax burden will be beared by consumers .

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