Question 43
Public FinanceUnder 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 increasing returns to scale.
Show the answer and explanation
Answer: A (demand for his product is completely elastic)
Explanation
With perfectly elastic demand any price rise loses all buyers, so the producer cannot pass any of the tax on and bears all of it.