Question

Under which circumstances does the tax burden fall entirely on consumers?

Short answer

If the supply curve is completely elastic (horizontal curve) under which circumstances tax burden falls entirely on consumers.

Step-by-step solution

Definition

Tax Incidence: The final burden of tax, or the final incidence of tax, is referred to as tax incidence. Taxes can be imposed on both consumers and producers. The elasticity of demand and supply of the good determines the tax burden share.

Explanation

The tax burden is always higher on the less elastic side. As a result, if the supply curve is fully elastic, the demand curve is perfectly elastic as well (horizontal curve). When a tax is imposed, the supply curve shifts upward, raising consumer prices. Here the providers keep getting the same price as before, while the entire tax burden falls on consumers. If the demand curve's elasticity is between 0 and 1, and the supply curve is completely elastic, the supply curve bears the entire tax burden. As a result, if the supply curve is fully elastic, the demand curve is perfectly elastic as well (horizontal curve).