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The supply of oil is more elastic than the demand for oil
The supply of oil is more elastic than the demand for oil. If oil is taxed $10 per barrel, how will the tax be divided between the buyers and sellers! of Select one: A. The buyers will pay more of the tax than the sellers, B. The sellers will pay the entire tax C. The sellers will pay more of the tax than the buyers D. The sellers and buyers will split the tax evenly.
Expert Solution
The supply of oil is more elastic than the demand for oil. If oil is taxed $10 per barrel, how will the tax be divided between the buyers and sellers?
Answer : (A) The buyer will pay more of the tax than the sellers.
The tax incidence depend on the relative Price elasticity of supply and demand. Here supply is more elastic than demand, so buyers bear most of the tax burden.
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