True or false? The effect of a tax is independent of the price elasticity of the demand

Economics Jan 19, 2021

True or false? The effect of a tax is independent of the price elasticity of the demand.

Expert Solution

The statement, " The effect of a tax is independent of the price elasticity of the demand," is False.

If demand for the good or service being taxed is elastic, it is more likely that the tax will have to be paid by the seller in order to maintain sales, although the seller may earn a smaller profit.

If demand for the good or service being taxed is inelastic, it is more likely that the tax will be passed along from the seller to the consumer, who may be willing to pay. The tax may take away part of a consumer surplus.

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