Answer :
Answer:
In case of salt, the buyers will bear the most burden.
In case of caviar, the sellers will bear most of the burden.
Explanation:
The demand for salt is inelastic, and the supply of salt is elastic.
The demand for caviar is elastic, and the supply of caviar is inelastic.
A tax of $1 per pound is levied on the sellers of salt, and a tax of $1 per pound is levied on the buyers of caviar.
The tax burden does not depend upon whom the tax is imposed. It is determined by the elasticity of demand and supply. Whoever has lower elasticity will share most of the burden.
In the case of salt, the demand is inelastic while supply is elastic. In this situation, as the tax increases create the tax wedge, the quantity demanded will change by a small proportion but the quantity supplied will decline.
The quantity supplied will decline by a greater proportion. This implies that most of the share of tax burden will be borne by the buyers.
In the case of caviar, the demand is elastic while supply is elastic. In this situation, as the tax increases create the tax wedge, the quantity demanded will change by a greater proportion but the quantity supplied will decline.
The quantity supplied will decline by a small proportion. This implies that the tax burden will be mostly borne by the sellers.