If demand is downward-sloping and supply is upward-sloping,which statement about the effects of an excise tax is INCORRECT?

A) The lower the elasticity of supply relative to the elasticity of demand,the lower the burden of the tax borne by suppliers.
B) An excise tax causes a deadweight loss because consumer and producer surpluses are reduced by more than the revenue the government collects.
C) An excise tax drives a wedge between the price paid by consumers and the price received by producers.
D) An excise tax is inefficient because it distorts incentives at the margin for both consumers and producers.

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kristina schweitzer · Accepted Answer

Final Answer : A, Explanation :  This statement is incorrect because the lower the elasticity of supply relative to the elasticity of demand, the higher the burden of the tax borne by suppliers. When supply is less elastic than demand, suppliers have less ability to adjust their quantity supplied in response to a change in price, so they bear a larger burden of the tax. The burden of the tax is highest when supply is perfectly inelastic (i.e. a vertical supply curve) and demand is perfectly elastic (i.e. a horizontal demand curve), in which case the entire burden falls on suppliers and none on consumers.

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