Suppose the elasticity of demand for a product is 0 and elasticity of supply is 1. If the government imposes a tax on the product, then

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Quizplus · Accepted Answer

When the elasticity of demand is zero, it means the demand is perfectly inelastic, and buyers are willing to pay any price for the product. In this scenario, if the government imposes a tax on the product, the entire burden of the tax falls on the buyers, and they pay all of the tax. On the other hand, the elasticity of supply being 1 means that the supply is elastic, and suppliers can switch to producing other goods. Therefore, they will not bear any burden of the tax, and the entire incidence falls on the buyers. Hence, option D is the correct answer.

Suppose the Elasticity of Demand for a Product Is 0