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Price elastcity and burden of sales tax

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Why does the burden of sales tax fall completely on consumer when the price elasticity of demand is perfectly inelastic; the seller when perfectly elastic and the prefect inelastic supply and perfectly elastic supply.

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Solution Summary

Solution describes how sales tax burden is distributed between seller and buyer in case of perfectly elastic and inelastic demand/supply situations.

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In case demand is perfectly inelastic, demand elasticity is 0. It means quantity demanded remains the same regardless of price. Any burden of sales tax means increase in price paid by consumer. Sellers will not ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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