If the demand curve for a good is perfectly inelastic, any commodity tax that is imposed on that market will be entirely paid by the consumer.

Question

Quizplus · Accepted Answer

When the demand curve for a good is perfectly inelastic, it means that no matter what the price is, consumers will still demand the same amount of the good. Therefore, if a commodity tax is imposed on that market, the price of the good will increase by the same amount as the tax, and the consumer will have to pay the entire amount of the tax without reducing their demand for the product. The producer will not bear any part of the tax burden because they cannot increase the price they charge without reducing the quantity demanded.

If the Demand Curve for a Good Is Perfectly Inelastic