UPSC CDS GS Economy Questions Part 1

Both the statements are correct. A tax is shifted forward to consumers if the demand i inelastic relative to supply and is shifted backwards to producers if the supply is relatively more inelastic than demand. Shifting of tax can take place in two directions, forward and backward. If tax is shifted, from producers to consumer, it is a case of forward shifting. Backward shifting takes place when consumers do not purchase commodities at increased prices. Producers are then forced to cut down prices and bear burden of tax themselves.