Tax Burden on Producers from Elastic Demand

Steps:

• Recall that indirect tax incidence divides burden based on price elasticities of demand (Ed) and supply (Es).
• Use formula: Producers' burden share = Ed / (Ed + Es).
• Higher Ed increases producers' share by raising numerator.
• Compare options to identify which maximizes producers' burden.

Why A is correct:

• Elastic demand (high Ed) raises the numerator in the incidence formula, so producers absorb more tax as consumers reduce quantity sharply.

Why the others are wrong:

• B: Elastic supply (high Es) increases denominator, reducing producers' burden share.
• C: Inelastic demand (low Ed) lowers numerator, shifting more burden to consumers.
• D: Inelastic supply (low Es) decreases denominator but assumes fixed Ed; alone, it increases producers' share, yet elastic demand (A) more directly forces producers to bear higher burden via consumer sensitivity.

Final answer: A