If an output tax is levied on a product that has a perfectly elastic demand,the tax will be shifted completely to the consumer in the form of higher prices.

Question

Quizplus · Accepted Answer

With perfectly elastic demand, consumers are very sensitive to price changes, so any increase in price due to a tax would lead to a complete loss of sales. Therefore, producers cannot pass the tax onto consumers and must absorb it themselves.

If an Output Tax Is Levied on a Product That