Under normal circumstances a producer will bear the entire burden of taxation on his output...

Economics

JAMB 1985

Under normal circumstances a producer will bear the entire burden of taxation on his output if the?

A. demand for his product is completely elastic
B. supply of his goods is more elastic than the demand
C. demand for his product is more elastic than the supply
D. production of his commodities is subject to diminishing returns
E. production of his commodities is subject to increase returns to scale

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Correct Answer: Option C

Explanation

A term that describes when buyers and sellers divide a tax burden is known as tax incidence. Producers would usually bear the tax burden if demand is more elastic than supply (that is changes in demand as a result of changes in factors such as prices).

When supply is more elastic than demand, the tax burden falls on the buyers. (that is when supply changes as a result of changes in prices).

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