If the government imposes a $5 excise tax on leather shoes and the price of leather shoes does not change:

Question

Quizplus · Accepted Answer

According to the principle of tax incidence, producers will bear the entire burden of the excise tax if the demand for leather shoes is perfectly inelastic. This means that the price of the shoes will not change and consumers will continue buying the same quantity of shoes at the same price. Therefore, the $5 per unit tax will be absorbed by the producers, causing their profits to decrease. As a result, the government will receive the expected amount of tax revenue.

If the Government Imposes a $5 Excise Tax on Leather