A tax on an industry with a perfectly inelastic supply curve will generate a dead weight loss:
A)lower than the consumer's surplus.
B)equal to zero.
C)equal to the sum of consumer surplus and producer surplus.
D)greater than the consumer's surplus.

Question

Quizplus · Accepted Answer

A perfectly inelastic supply curve means that producers are unable to change the quantity supplied regardless of the price. As a result, the tax burden will fall entirely on the consumers, causing no change in the quantity supplied or demanded. Therefore, there will be no deadweight loss generated, and the answer is B.

A Tax on an Industry with a Perfectly Inelastic Supply