After a tax is imposed on the market for bottled water, the price buyers pay is $2.50 per bottle and the price sellers receive is $1.75. If the equilibrium price was $2.00 before the tax was imposed on the market, what can you conclude about the relative price elasticities of demand and supply? Demand is more elastic than supply. Supply is more elastic than demand. The price elasticities of demand and supply are equal. We need to know whether the tax is collected from the buyers or sellers to conclude anything about the relative elasticities of demand and supply.

Supply is more elastic than demand. 

Explanation:

The total tax on a unit of bottled water = ( $2.50 - $2 = $0.50 ) + ($2 - $1.75 = $0.25) = $0.75

It can be seen that consumers bear the greater burden of tax when compared to producers.

Elasticity of demand or supply measures the sensitivity of quantity demanded or supplied to changes in price.

It is believed that whoever bears the more burden of tax has a less elastic demand or supply and the party that bears the less burden of tax has a more elastic demand or supply.

The more elastic demand or supply is, the greater its sensitivity is to changes in price. If there's a small change in price, there's a greater change in quantity demanded or supply changes.

The less elastic demand or supply is, the less sensitive quantity demanded or supplied is to changes in price.

So the party with the less elastic demand or supply would bear more burden of tax. In this question, it is consumers.

While the party with a more elastic demand or supply would bear less burden of tax. In this question, it is the producers.

I hope my answer helps you

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