Tax incidence depends on elasticities; burden shifts toward the less elastic side.

• A. It falls entirely on consumers
• B. It falls entirely on producers
• C. It depends on elasticities; burden shifts toward the less elastic side
• D. It is always shared equally

Answer: (C)

Tax incidence shows who ultimately pays a tax after it’s imposed, and the main driver is how sensitive buyers and sellers are to price changes—elasticity. If buyers’ demand is inelastic, they won’t cut back their purchases much when the price rises because of the tax, so they end up bearing most of the burden through higher prices. If sellers’ supply is inelastic, they can’t easily reduce quantity, so they absorb more of the tax as a lower net price received. In general, the burden shifts toward the side that is less elastic, not automatically all on one side or shared equally. So the correct statement is that it depends on elasticities; the less elastic side bears more of the tax.