The price elasticity of demand for a particular cancer drug is zero and the price elasticity of supply is 0.50.If a $1 excise tax is levied on producers,how much of this tax will eventually be paid by consumers?

Question

Quizplus · Accepted Answer

Since the price elasticity of demand for the cancer drug is zero, consumers are willing to pay any price for the drug, and therefore, the entire burden of the tax falls on the producers. The price elasticity of supply is 0.50, which indicates that producers are only willing to absorb half of the tax, and they will pass on the rest of the tax to consumers in the form of a higher price. Therefore, the consumers will bear the full $1 tax in the form of a higher price, and the answer is B.

The Price Elasticity of Demand for a Particular Cancer Drug