When the demand for a commodity is inelastic, who bears the greater burden of the indirect tax?
Answer Details
When the demand for a commodity is inelastic, the consumer bears the greater burden of the indirect tax. This is because when the demand for a product is inelastic, it means that the consumers are not very responsive to changes in price. Therefore, if the price of the product increases due to an indirect tax, the consumers will continue to buy the product despite the price increase, and the producer will not be significantly affected. The producer can, therefore, pass on most of the tax burden to the consumer by increasing the price of the product. As a result, the consumer pays more for the product, while the producer's profits remain relatively unchanged.