The buyer will pay the entire tax levied on a good when the demand for the good is ________ or when the supply of the good is ________.

Question

Quizplus · Accepted Answer

When the demand for a good is perfectly inelastic, it means that consumers will buy the same quantity of the good regardless of the price. Therefore, the entire tax will be passed on to the buyer. Similarly, when the supply of a good is perfectly elastic, it means that any increase in price will lead to an infinite increase in quantity supplied. As a result, the seller will not be able to pass on any part of the tax to the buyers, and the entire burden will fall on the seller. Hence, the buyer will pay the entire tax levied on a good when the demand for the good is perfectly inelastic or when the supply of the good is perfectly elastic.

The Buyer Will Pay the Entire Tax Levied on a Good