If the demand for a good is very price inelastic, the imposition of a tax on that good
A)places the burden of the tax equally on buyers and sellers
B)permits sellers to pass most of the cost increase resulting from the tax on to the consumers of the product
C)reduces the profits earned by sellers since they must write the check to pay the tax
D)makes the demand more inelastic
E)makes the demand more elastic

Question

Quizplus · Accepted Answer

If the demand for a good is price inelastic, it means that consumers are not very responsive to changes in price. Therefore, when a tax is imposed, sellers can pass most of the cost increase to consumers without experiencing a significant decrease in demand for the product. This results in the burden of the tax being mostly on the consumers, and not equally shared between buyers and sellers.

If the Demand for a Good Is Very Price Inelastic