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Consider a Market in Which the Law of Demand Hold

Question 4

Multiple Choice

Consider a market in which the law of demand hold, but supply is perfectly inelastic.The government levies a tax on consumers of t per unit consumed.In this case

A) Consumer and suppliers share the incidence of the tax; the DWL is increasing in the price elasticity of demand.
B) Consumer and supplier share the incidence of the tax; there is no DWL.
C) Suppliers pay for part of the tax; the DWL is increasing in the price elasticity of demand.
D) Suppliers pay for all of the tax; the DWL is zero.
E) None of the above.

Correct Answer: