Tax is added to price when
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Tax is added to price when
demand is perfectly elastic
demand is highly inelastic
supply is highly elastic
supply is perfectly elastic
When demand is highly inelastic (consumers are relatively unresponsive to price changes), sellers can pass the tax burden onto buyers by increasing prices. If demand were elastic, consumers would reduce purchases significantly in response to price increases, making it difficult to add taxes to prices. This is why 'sin taxes' on addictive goods (with inelastic demand) are effective.