Consumer bears the greater burden of a tax on a good or service when demand is inelastic or supply is elastic.
What is meant by inelastic demand?
- When an item or service's quantity remains constant when its price increases, it is said to be "inelastic."
- When a good or service's price increases or decreases, consumers' purchasing patterns essentially stay the same. The same is true when the price of the good or service decreases.
- The demand for an item or service that is totally inelastic would not fluctuate regardless of price; however, no such good or service exists.
- In contrast to elastic, which experiences major variations in demand when the price changes, inelastic is the opposite.
- Medication is considered to be an essential good, while luxury goods like cruises and designer watches are thought to be elastic.
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