Other things being equal, the _____ the demand curve, the greater the proportion of a tax that is paid by consumers, and the _____ the supply curve, the greater the proportion of a tax that is paid by consumers.

a) steeper; steeper,

b) steeper; flatter,

c) flatter; steeper,

d) flatter; flatter.

The correct answer is (c).

1. Other things being equal, the flatter the demand curve, the greater the proportion of a tax that is paid by consumers, and the steeper the supply curve, the greater the proportion of a tax that is paid by consumers.

Elasticity shows how one variable changes with respect to variations in another. If a slight change in the variable in question leads to a significant difference in the other, then it is said to be elastic. In contrast, if there is no change in the other, it is said to be inelastic. Elasticity, to a great extent, determines the tax incidence. A tax incidence is a term that shows how the burden of a given tax is shared between various parties such as sellers and buyers or employers and employees. When demand is inelastic (flatter curve), such as the demand for prescription drugs, the tax burden is borne by the buyers, while if supply is inelastic (flatter curve), consumers bear the tax burden.