When the demand for a good is fairly inelastic, the burden of an indirect tax falls

Assessment: WAEC SSCE - Economics - 2010 (Objective) Subject: Economics

Question 1 Report

When the demand for a good is fairly inelastic, the burden of an indirect tax falls

Answer Details
When the demand for a good is fairly inelastic, it means that consumers are not very sensitive to changes in the price of the good. In this case, if the government imposes an indirect tax on the good, the burden of the tax will mostly fall on the consumers of the good. This is because consumers will continue to buy the good even if the price increases due to the tax, and therefore will end up paying most of the tax. The sellers may bear some of the burden of the tax if they are unable to pass on the entire tax to consumers in the form of a higher price. However, since the demand is fairly inelastic, they will be able to pass on most of the tax to consumers. Therefore, the correct answer is "more on the consumers of the goods".

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