Tax Incidence and Elasticity

Steps:

• A tax shifts the supply curve up by the tax amount, creating a price wedge.
• The tax burden on consumers is the price increase they pay; on producers, the price reduction they receive.
• Burden falls more on the less elastic side: inelastic demand means consumers bear more as they reduce quantity little.
• To maximize consumer burden, demand must be inelastic (low responsiveness) and supply elastic (high responsiveness, allowing full pass-through).

Why B is correct:

• Per tax incidence formula, consumer share = Es / (Es + Ed); high Es (elastic supply) and low Ed (inelastic demand) make this near 1, so consumers pay most.

Why the others are wrong:

• A: Both elastic means equal sharing, not most on consumers.
• C: Elastic demand lets consumers avoid burden by reducing quantity; inelastic supply forces producers to absorb more.
• D: Both inelastic means equal sharing, not most on consumers.

Final answer: B