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
jamb 1985economics

The correct answer is C. demand for his product is more elastic than the supply

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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