The buyers pay the entire sales tax levied on a good when demand is perfectly _______ or supply is perfectly _______.

Question

Quizplus · Accepted Answer

When demand is perfectly inelastic, buyers do not reduce their quantity demanded regardless of the price increase, thus bearing the entire tax burden. Similarly, when supply is perfectly elastic, suppliers can easily leave the market or avoid entering it if the tax makes selling unprofitable, shifting the tax burden entirely to buyers.

The Buyers Pay the Entire Sales Tax Levied on a Good