Which of the following statements about the burden of a tax is correct?

• A. The burden of a tax falls more heavily on the side of the market that is less elastic.
• B. Sellers always bear the entire burden of a tax regardless of elasticity.
• C. Buyers always bear the entire burden of a tax if the supply curve is perfectly elastic.
• D. The burden of a tax is always shared equally between buyers and sellers.

Answer: (A)

Verified step by step guidance

1. Understand the concept of tax incidence, which refers to how the burden of a tax is divided between buyers and sellers in a market.
2. Recall that the elasticity of demand and supply measures how sensitive quantity demanded or supplied is to changes in price.
3. Recognize that the side of the market (buyers or sellers) that is less elastic (less responsive to price changes) will bear a larger share of the tax burden because they cannot easily change their quantity demanded or supplied.
4. Analyze each statement by comparing it to the principle that the less elastic side bears more of the tax burden:
5. Conclude that the correct statement is: 'The burden of a tax falls more heavily on the side of the market that is less elastic,' because this aligns with the fundamental economic theory of tax incidence.