For a given tax assessed on producers, market price changes the most if demand is perfectly inelastic and supply is perfectly elastic.

Question

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When demand is perfectly inelastic, consumers are willing to pay the same price regardless of changes in supply or taxes. Therefore, all of the tax burden falls on producers, resulting in a significant increase in their costs. On the other hand, when supply is perfectly elastic, producers can easily adjust their output in response to changes in price or taxes, resulting in a minimal impact on the market price. Combining these two scenarios, the market price changes the most in response to a tax assessed on producers.

For a Given Tax Assessed on Producers, Market Price Changes